[News] TSMC reports the highest electricity price in Taiwan, impacting next year’s gross margin

During its Oct. 17 earnings call, TSMC said electricity prices for its factories in Taiwan have doubled in recent years, making them the highest of any of its global operations.

According to a report by CNA, TSMC said that factors affecting next year’s gross margin include electricity costs, foreign exchange rates and the introduction of advanced nodes, among others. Increasing the capacity of foreign factories could also reduce gross margin by about 2 to 3 percentage points.

According to the report, TSMC Chief Financial Officer Wendell Huang pointed out that the increase in electricity prices in Taiwan is one of the important factors affecting TSMC’s gross profit margin. He expects rising electricity costs combined with other cost factors to hit gross profit margins by at least 1% next year.

Huang said that the electricity price of TSMC’s factories in Taiwan is now the highest of all operating factories worldwide, and the electricity price adjustments in October this year increased TSMC’s electricity prices by 14%.

According to the report, Huang mentioned that the price of electricity for TSMC in Taiwan has doubled in recent years. In 2022 the price of electricity rose by 15% and in 2023 by 17%. There was a 25% increase in the first half of this year.

TSMC’s rising power consumption has recently raised concerns about Taiwan’s energy supply. Citing a report from S&P, a report from Wccftech highlights that the foundry giant’s electricity consumption could almost triple by 2030 compared to 2023, which would account for about 24% of the island’s total electricity consumption.

According to Wccftech, TSMC’s move to 3nm chip production is driving S&P’s forecasts for the company’s increasing power consumption. On the other hand, the report also cites data from Taiwan’s state-owned power utility TaiPower to show that the island’s power reserve margin continues to fall short of the government’s 15 percent target.

Additional factors that could impact gross margin next year will also be discussed in the earnings call. According to the report, the shift towards more advanced nodes such as 3nm and 2nm has had a significant impact on gross margins.

TSMC has shifted some of its capacity from 5nm to 3nm chip production to meet strong demand for 3nm chips. The company also plans to begin 2nm production in 2026. All of these factors contribute to increased costs and impact gross margin.

Huang also noted that exchange rate fluctuations could affect gross margin next year. According to the report, industry insiders predict about a 1 percent change in the USD-to-NTD exchange rate, which could impact TSMC’s gross margin by about 0.4 percentage points.

Additionally, institutional investors expressed concerns about antitrust issues on the earnings call, the report said. Chairman and CEO CC Wei emphasized that TSMC not only produces wafers, but also engages in advanced packaging, testing and mask production. Revenue from these additional sectors contributes approximately 10% of total revenue.

According to the report, taking into account advanced packaging, testing, mask production and other projects, TSMC holds about 30% market share in the semiconductor wafer industry. He emphasized that the company does not have a monopoly and therefore does not face antitrust problems.

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(Image credit: TSMC)