Chip Wafer Demand Outstrips Taiwan Semi's Capacity

Surging demand for energy-efficient chips for smartphones, tablet PCs and other mobile devices is exceeding the capacity of Taiwan Semiconductor to manufacture wafers used for making advanced 28 nanometer processor chips, the company said Tuesday.

The shortage is expected to continue through the third quarter, and market demand won’t be met until well into 2013.

Taiwan Semi is the world’s largest foundry for the wafers used to make the processors that are the brains of all computing devices, including those made by companies like Intel, Qualcomm and Apple. The push by Apple, Samsung, Nokia, LG, HTC, Blackberry and others to develop increasingly energy-efficient smartphones is driving the demand for the most highly miniaturized processor chips. Currently, the ultimate is wafers etched with 28-nm process.

Taiwan Semi is making a push to satisfy more of its customers’ demand but that goal won’t be achieved before the end of 2012. In fact, the demand won’t be fully satisfied until 2013 as more competitors come online with 28-nm process wafer production. The company failed to come up with an accurate forecast about global demand and didn’t expand production capacity in a timely manner.

However, in an effort to make up for the shortage the company revised upward its capital expenditure plan for 2012 to $8 billion-$8.5 billion from the earlier plan to invest $6 billion.

In the first quarter it posted a rise in net profit of 6% from a quarter earlier due to strong demand for mobile devices like smartphones and tablet computers.

During the first quarter chips using the 28-nm process accounted for 5% of total sales. By the fourth quarter the ratio that is expected to rise to more than 20%.

Taiwan Semi is at the forefront of efforts to develop developing 18-nanometer process wafers which many see as likely to be the limits of current semiconductor technology. The technology isn’t likely to be production-ready until some time in 2014 at the earliest. The only other companies undertaking development of 18-nm process chips are Samsung and Intel, according to Taiwan Semi’s CEO.

The shortage of 28-nm wafer capacity has annoyed some of Taiwan Semi’s clients but it has been good for the firm’s gross margins. TSMC posted gross margins of 44.7% during the first quarter, beating earlier estimate of 42.5-44.5%. The gross margin is expected to rise to between 47 and 49% in the second quarter.