TSMC Ramps Up Production for AI, Squeezing Equipment Suppliers
With demand for AI chips overwhelming, TSMC is rapidly ramping up the new factories and production capability. It has been pushing its equipment manufacturers to shorten delivery timings, making for a bouquet of opportunities and challenges for its supply chain by the year 2026.
Aggressive Expansion of Advanced Manufacturing
TSMC's technological prowess gives it the ability to monopolize most of the orders relating to AI, thereby instigating a massive build-out of facilities. Key expansion programs include:
- 2nm Process: New fabs under construction and installation at Hsinchu and Kaohsiung, with another expansion being carried out in the Southern Taiwan Science Park.
- 3nm Process: Existing fabs constantly increasing their 3nm capacity in Southern Taiwan Science Park.
- 1.4nm Process: Construction started on a new fab in Central Taiwan Science Park.
- Advanced Packaging (CoWoS): Facilities for CoWoS capacity are urgently needed and are currently under construction in the Southern Taiwan Science Park and Chiayi.
- Overseas fabs: In the US, the first fab has entered mass production, the second is under plant engineering, and the third is currently under construction.
There is a heightened sense of urgency to expand, especially following the visit by NVIDIA CEO Jensen Huang in early November to request even more chip production. According to industry sources, TSMC aims to reach about 100,000 wafers in monthly 2nm production capacity by the end of next year.
Supply Chain Feels the Pressure
TSMC's suppliers are undergoing a complex situation whereby, although demand is booming, they are getting some pressure.
- Challenges: Suppliers are busy trying to rush with projects yet find it difficult to increase prices to major clients such as TSMC. Inflation, labor shortage, and rising wages are all costing the supplier.
- Opportunities: High demands means suppliers are heavily busy this year and expecting 2026 to be another year of good growth. In particular, the advanced packaging equipment suppliers are looking at full capacity for the entire next year.
Capital Expenditures and Market Position
According to industry analysts, TSMC's capital expenditure in the coming year would stand somewhere between $48 billion and $50 billion. A substantial portion of this budget is directed toward the development of the 2nm process, along with the ramp-up of other high-volume nodes.
With Intel Foundry and Samsung's offerings still falling short of a competitive solution for the external market, major customers are left with few alternatives. This scenario rallies most of the demand and pressure toward TSMC, thus propelling its further fast-paced growth, albeit in a challenging environment.
