TSMC Remains Strong Even after Cutting Ties with Huawei

Taiwan's TSMC, the world's No. 1 foundry company, has widened its gap with Samsung Electronics in terms of foundry sales, even after the U.S. sanctions against Huawei. This development raises the question whether Samsung Electronics will be able to overtake TSMC in the foundry field. Samsung Electronics vice chairman Lee Jae-yong declared the “Semiconductor Vision 2030" to become the world’s No. 1 player in the system semiconductor market.

TSMC said on its official homepage on Sep. 10 that its sales reached 122.9 billion Taiwanese dollars (about 5 trillion won) in August. The figure is a 15.8 percent increase from a year ago and a 16 percent increase from July. In July, it suffered a 12.3 percent drop in sales in from June.

Earlier, TSMC said in a briefing on its second-quarter earnings that it has not received any new orders from Huawei since May, and that it will not be able to deliver semiconductors to Huawei beginning Sept. 15. As sales plunged in July, industry sources said that the U.S. sanctions against Huawei began to weigh upon TSMC’s sales. Huawei accounted for 14 percent of TSMC's annual sales.

However, as sales recovered in August, some experts said that the U.S. sanctions on Huawei actually did not affect TSMC’s sales as much as initially expected. In the first eight months of this year, TSMC's cumulative sales hit 850 billion Taiwanese dollars (about 34.51 trillion won), up 30.7 percent from the same period of 2019.

Therefore, the drop in TSMC’s sales in July is believed to have been caused by concerns about a downturn of the semiconductor market in the second half of 2020, which were fueled by a decline in semiconductor prices.

The smaller-than-expected impact of U.S. sanctions on Huawei may be explained in part by the fact that Huawei places chip manufacturing contracts on TSMC through its subsidiary, HiSilicon.

A rebound in TSMC's sales in August means that while its supply to Huawei had stopped since May, the company received orders from global customers that offset the Huawei impact. Therefore, TSMC’s sales are highly unlikely to plunge. Some experts speculate that TSMC’s customers such as Apple, Google, Qualcomm, Nvidia, and AMD have increased their orders to TSMC to establish more solid relationships with TSMC. In fact, TSMC is expanding its business with large U.S. customers such as AMD and Apple. Apple receives ARM-based CPUs for its new Mac models and the A14 mobile AP for the iPhone 12 from TSMC. AMD is planning to introduce the Zen 3 CPU for PCs and the Radeon RX6000 GPU series in October. It is expected to rely on TSMC for production of these products.

Meanwhile, some experts speculate that Huawei’s orders were placed on TSMC through other semiconductor design companies. MediaTek of Taiwan announced that it posted US$32.7 billion in sales in August. The figure is up 41.9 percent from the same period of 2019 and 22.5 percent from July. MediaTek is designing mobile APs and 5G communication modems and outsources production to TSMC.

TSMC appears to be looking for new customers that will replace Huawei before the U.S. sanctions against Huawei kick off on Sept. 15. However, it remains to be seen whether TSMC's bypass strategy will pay off in light of the U.S. government's strong new sanctions announced in August.

Meanwhile, attention is being paid to Qualcomm's move. Qualcomm strongly wants to continue its business ties with Huawei and is waging a strong lobbying campaign to win special approval from the U.S. government to export its products to Huawei. Qualcomm claims that Huawei will eventually be able to procure equipment and devices needed to produce 5G smartphones from non-U.S. companies, including Samsung Electronics and MediaTek. Samsung Electronics, however, is also set to stop supplying its products to Huawei beginning Sept. 15 due to tougher U.S. sanctions.

Huawei accounts for 6 percent of Samsung Electronics’ annual sales. On the other hand, TSMC relied on Huawei for 14 percent of its annual sales. It cut off its business ties with Huawei but still remains strong.

As TSMC continues to grow despite severed transactions with Huawei, the challenges facing Samsung Electronics are getting tougher. The Korean semiconductor giant is pushing for the “Semiconductor Vision 2030” to become number one in the system semiconductor market by 2030. It has recently won a series of foundry orders from big customers including IBM, Qualcomm and Nvidia. But these orders are not enough for the company to catch up with TSMC.

Market research firm TrendForce predicted that TSMC and Samsung Electronics will account for 53.9 percent and 17.4 percent of the global foundry market in the third quarter of 2020. This means that the gap will further widen from 51.5 percent vs. 18.8 percent in the second quarter. The widening gap in sales between the two companies is the reason why some experts believe that the U.S. sanctions on Huawei would not serious affect TSMC. Therefore, the prospect for Samsung Electronics to overtake TSMC appears to be not quite bright.

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