TSMC, the "biggest boss" of the world's semiconductor foundry industry, happily went to the United States to build a factory with the dividends promised by the U.S. government. They thought they were waiting for profits to soar, but things didn't go as planned. The budget for building the factory kept increasing, and the company's profits were also "halved". After recognizing the reality, the top management collectively went to the mainland to seek a "new way out". What exactly did TSMC encounter in the United States? Can it seek help on the mainland?

TSMC's profits plummeted

After TSMC announced its financial report for the first quarter of this year, what awaited them was not a significant increase in profits, but a sharp drop in profits that exceeded the imagination of the top management.

According to the data, TSMC's financial report for the first quarter of 2023 showed a 18.7% decrease in the company's revenue compared to the previous quarter, and the net profit fell by 30%. For the world's top chip foundry, this is a huge blow, and such a huge drop in profits has also had a significant impact on Taiwan's economy.

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Such a huge drop in profits happening to TSMC is almost impossible.

However, if you analyze it carefully, everything is actually very reasonable.

Firstly, TSMC's main business is chip foundry, and the global economic market has been impacted by inflation, with the momentum of economic growth gradually slowing down, and the overall economic situation showing a downward trend.

The slowdown in economic growth naturally leads to a slowdown in chip demand. At the same time, some countries capable of manufacturing chips are also increasing their chip manufacturing capabilities, which is equivalent to a heavy blow to TSMC's main source of revenue.Additionally, the cost of manufacturing chips has been affected due to the Russia-Ukraine conflict, which has led to a disruption in the supply of raw materials. The rapid increase in the prices of raw materials, coupled with the reform and innovation in science and technology, has also led to an increase in the manufacturing costs of chips. This has forced TSMC to increase its investment to maintain its leading position in chip foundry services to meet customer demands.

These two factors, one impacting TSMC's profits and the other affecting costs, have both had a negative impact on TSMC's revenue.

However, the above two points are not the real reasons that fundamentally affect TSMC's profitability. The main reason for the sharp decline in TSMC's profits is its investment in building a factory in the United States.

TSMC's factory construction in the U.S. has been a disaster.

The United States has gone to great lengths to restrict China's development, attempting to suppress China's rise from an economic and technological perspective, trying to prevent China's rapid development from affecting the United States' hegemonic status on the international stage.

TSMC has become the "cannon fodder" for the United States in its efforts to suppress China.

China's achievements in the chip research and development industry are evident to all. The United States has tried to hinder the development of China's chip research and development industry by first announcing the "CHIPS Act," which prohibits the Netherlands and South Korea, both skilled in chip manufacturing and storage, from exporting chip-related equipment to China, adding some "obstacles" to China's chip development.

Then came the move against TSMC, as it is the world's largest chip foundry company, and China is a major consumer of chips, especially with companies like Huawei.

The United States offered TSMC very generous preferential conditions, inviting TSMC to build a factory in the U.S., saying, "We will give you $52 billion in economic subsidies if you build a factory in the United States, but you must stop continuing to manufacture chips for the mainland."Before halting the supply of chips to the mainland, TSMC's revenue from the US market accounted for approximately 50% of its total income, while the mainland contributed 20%. After establishing a factory in the US, although it lost market share in the mainland, its US market share increased to 68%.

It was initially thought that the loss of the mainland market would impact the company's profitability, but the sales in the US market went up, and there were substantial benefits and subsidies for building a factory in the US. This deal seemed profitable, but unfortunately, things did not go as planned, as the US reneged on its promises!

The expected "mutual奔赴" turned out to be TSMC's "one-sided wishful thinking".

According to reports from the Hong Kong-based China Review News Agency, TSMC planned to invest $12 billion in the US to establish a high-end 3nm chip production line. However, due to the lack of basic industrial chain workers in the US and the high costs required for building the factory, this budget ultimately swelled to $40 billion.

But as the demand for chips slowed down, the Chinese market was also actively excluded from the industrial chain by the US. US-based chip manufacturers also had to slow down the upgrade of high-end chip services and experiences. For TSMC, which had just invested in a high-end production line in the US, this was undoubtedly a double blow.

At this point, if the promised subsidies for building the factory in the US had been delivered, it wouldn't have been a loss. However, the US side stated, "Exchange TSMC's trade secrets and related cooperation materials for it." Handing over these materials would mean that TSMC would completely become a "puppet" in the hands of the US.

The initial investment was trapped, and the promised subsidies were not received, resulting in significant losses for TSMC!

What's even more outrageous is that shortly after TSMC announced it would no longer participate in chip foundry services for mainland China, the US had already allowed its domestic companies to do business in the mainland. Qualcomm resumed exporting chips to China, and GlobalFoundries attempted to invest in building factories in China. Even European chip companies also tried to share in the "big cake" of the Chinese market.

At this time, TSMC finally realized that it was just a pawn for the US to suppress China, and it was the kind that could be discarded at any time.TSMC Executives Seek Help from Mainland China

While the United States welcomes TSMC to build factories in the country, it simultaneously uses policies to "encroach" on TSMC's market share, forcing TSMC's top management to seek new ways out.

The financial report for the first quarter of this year was too bleak, with a significant drop in revenue and net profit, which led J.P. Morgan to proactively lower its profit expectations for TSMC.

Perhaps due to the high production costs in the United States, Apple Inc. voluntarily reduced the number of chips produced by TSMC.

This series of setbacks has also led TSMC's top management to consider returning to the mainland market.

According to reports from the China Times News Network in Taiwan Province, TSMC's top management is going to attend a technology forum held in Shanghai and has expressed intentions to seek cooperation with Alibaba and Biretech.

This visit by TSMC's top management to the mainland is the first since 2020.

However, will TSMC really have a chance? There is a lot of uncertainty about this.

China's domestic chip research and development industry has flourished in recent years under the blockade by the United States. Huawei, as a strong force in China's independent research and development, has completed the independent research and development of more than 10,000 core components. Does TSMC, which chooses to return to the mainland market at this time, really have a chance?

Moreover, TSMC is still subject to the control of the United States in some decision-making aspects, and perhaps TSMC does not have much say in some key decisions.TSMC's advantage in advanced chip manufacturing processes is its trump card for re-entering the mainland market. However, this trump card is not particularly enticing for the mainland market. Even if China's self-developed chips do not reach the world's top tier in the short term, foreign chip manufacturers such as Samsung, ASML, and Qualcomm are all coveting the Chinese market.

TSMC's visit to the mainland this time seems to be looking for opportunities to re-enter the mainland market and seek a future for the company. But in fact, it seems more like TSMC's self-rescue. Cooperating with the mainland allows TSMC to take the initiative in the company rather than being controlled by others.