TSMC maintains long-term profit margin goal despite power rate hikes

Taipei, March 23 (CNA) Taiwan Semiconductor Manufacturing Co. (TSMC) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates.

One of the heaviest power consumption manufacturers in Taiwan, TSMC said it always respects the government's energy policy and will continue to operate its wafer fabs by making efforts in energy conservation.

As a result, the chipmaker said it has left a long-term goal of more than 53 percent in gross margin -- the difference between revenue and the cost of goods sold -- unchanged.

The Ministry of Economic Affairs (MOEA) concluded a power rate evaluation meeting on Friday, announcing electricity tariffs will go up by 11 percent on average to about NT$3.4518 (US$0.108) per kWh for household and industrial users to stem massive losses for the state-owned Taiwan Power Co.

For industrial users, the increases range from 7 percent to as high as 25 percent depending on how much electricity certain industries use.

The average rise in industrial rates is 12.7 percent, pushing the average price from NT$3.38 per kWh up to about NT$3.81 per kWh, according to the ministry.

TSMC is said to belong to the ultra-high voltage power user group which will see electricity bills rising by 25 percent due to their consumption of more than 500 million kWh per year.

According to an estimate by local news media, the electricity rate hike will add about NT$4 billion to TSMC's electricity bill a year, and cut its annual earnings per share by about NT$0.154.

The chipmaker recorded a gross margin of 53.0 percent in the fourth quarter of last year, close to the higher end of its forecast of 51.5-53.5 percent, but down 1.3 percentage points from a quarter earlier because its 3-nanometer chips had not yet reached economies of scale. The 3nm process is the latest technology TSMC began commercial production at the end of 2022.

TSMC said the company has five energy conservation task forces in place to facilitate power savings across its operations such as advanced process research and development, 12-inch and 8-inch wafer production, backend packaging and testing services, and extreme ultraviolet lithography (EUV) equipment, which rolls out high-end chips.

In 2022, TSMC said, the company implemented massive power conservation measures to cut power use by 700 million kWh a year, which was equivalent to a reduction of almost 360,000 metric tons in carbon dioxide emissions.

Among these measures, TSMC has optimized 12-inch wafer production equipment, which has helped the company cut electricity consumption by about 112 million kWh a year. In addition, the company has worked with its EUV supplier to cut power consumption by 22 percent from the production of each wafer made by EUV machines.

TSMC reiterated the company is determined to fulfill its social responsibility.

To a market estimate, TSMC's operations in Taiwan account for more than 90 percent of the company's total revenue.

Among other semiconductor suppliers in Taiwan, dynamic random access memory (DRAM) supplier Nanya Technology Corp. cited a preliminary assessment as saying the power tariff hike is expected to push up its costs by 1-3 percent and affect its gross margin. However, Nanya Technology emphasized the impact will be minor.

Powerchip Semiconductor Manufacturing Corp., a smaller contract chipmaker, said the power rate hike is expected to boost its electricity bill by about 15 percent and push up operating costs by 1.5 percent, while United Microelectronics Corp., another smaller contract chipmaker, said the power rate hike is expected to impact its profit margin slightly, adding the company will continue energy conservation efforts to improve conservation efficiency.

For its part, GlobalWafers Co., the world's third-largest silicon wafer supplier, said its gross margin could stay flat or fall slightly this year due to higher electricity costs.

GlobalWafers said, however, that it is committed to using renewable energy in its production.

GlobalWafers added green power produced by its solar power equipment is expected to account for 100 percent of electricity use in Its Denmark-based subsidiary Topsil in the second half of 2024, while the new 12-inch wafer facility under MEMC Electronics Materials S.p.A., another subsidiary in Italy, is planning to use 100 percent green power in its production in 2025.