- The world's largest contract chipmaker, TSMC, has committed to investing $100 billion over three years to ramp up production. Rival Intel announced last March that it plans to spend $20 billion on two new chip plants in Arizona.
- In the short term, semiconductor analyst Peter Hanbury expects the recovery from the chip shortage to be "choppy."
- Several other companies in the semiconductor supply chain will benefit from investments made by the chipmakers.
Semiconductor companies around the world are preparing to make major investments in their research and development facilities, in an effort to meet growing demand as the global chip shortage rages on.
The world's largest contract chipmaker, TSMC, has committed to investing $100 billion over three years to ramp up production of its cutting-edge silicon wafers, which are used to make a variety of chips.
in January, it said that its capital expenditure will grow by up to 47% in 2022, adding that it plans to spend between $40 billion and $44 billion this year, up from $30 billion last year.
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The Taiwanese chip giant, which is headquartered in Hsinchu and has a market cap of almost $600 billion, is building a $12 billion factory in Phoenix, Arizona, and another in Japan to increase capacity. It has several other fabrication plants — also known as fabs — in development.
TSMC certainly isn't the only chipmaker investing billions into hi-tech factories, which tend to take three to four years to come online.
Rival Intel announced last March that it plans to spend $20 billion on two new chip plants in Arizona. Intel has had a presence in Arizona for over 40 years and the state is home to a well-established semiconductor ecosystem. Other major chip companies with a presence in Arizona include On Semiconductor, NXP and Microchip.
Samsung, South Korea's biggest company, has not given guidance for 2022 but last month the company revealed that it spent 90% of its 2021 annual capital expenditure of 48.2 trillion won ($40.1 billion) in the chip business.
In 2021, semiconductor companies worldwide spent $146 billion building new production capacity and on research, according to research firm Gartner. TSMC, Samsung and Intel — three of the world's biggest chipmakers — accounted for 60% of the $146 billion.
"We see capital [expenditure] nearly doubling over the 2021-2025 5 year period vs. 2016-2020 period," Peter Hanbury, a semiconductor analyst at research firm Bain, told CNBC.
"This increase is due to both the increasing complexity of new leading edge technologies which have more process steps to create a wafer and require more expensive tools, as well as a response to the chip shortage with manufacturers increasing capacity across many technologies."
Many of the other big names in semiconductors — like Nvidia, AMD, and Qualcomm — don't need to spend such vast amounts of money because they are "fabless," Glenn O'Donnell, research director at analyst firm Forrester, told CNBC.
"They design the chips and then contract to someone like TSMC to actually make the chips," he said.
Chip shortage continues
Despite the vast sums being invested, the semiconductor industry is still struggling to produce enough chips.
"We just can't make enough chips to fulfil society's gluttony for anything powered by semiconductors," said O'Donnell.
Chips are used in everything from kettles and washing machines to headphones and fighter jet missile systems. Many products, such as cars, contain dozens of chips.
Some have speculated that there will be a "chip glut" once all the new fabs are churning out more chips, but O'Donnell disagrees.
"The human race is addicted to technology," he said. "Demand will continue to increase, not wane. In fact, I am skeptical that all this investment is actually enough."
In the short term, Hanbury expects the recovery from the chip shortage to be very "choppy," adding that a shortage in one area enables more of different end product (like a PC) to be built.
"But that then increases demand for all of the other chips required to make that end product," he said. "It's a bit like a 'whack a mole' problem."
In the long term, Hanbury sees little risk of oversupply in the next two to three years as it will take some time to build the chip factories that have been recently announced.
"However, we are watching for future over-supply," he said, adding that more facilities will likely be built once governments have refined and finalized their incentive schemes.
Some of the less well-known chipmakers are also planning to increase their spending this year.
Munich-headquartered Infineon, Europe's largest chipmaker, said Wednesday that it will spend an extra 2.4 billion euros ($2.7 billion) on expanding operations to meet demand.
Meanwhile, French-Italian chipmaker ST Micro said last week that it plans to double investments this year to up to $3.6 billion to meet demand. Last year the Geneva-headquartered firm, whose biggest clients include electric carmaker Tesla and iPhone maker Apple, spent $1.8 billion.
Several other companies in the semiconductor supply chain will benefit from investments made by the chipmakers.
"Watch companies like ASML, Applied Materials, and Air Products," O'Donnell said. "They are key suppliers to these chipmaking facilities, so they are about to enjoy their own boom cycle."