TSMC Navigates Currency Storms and Advances Chip Technology Amid Global Expansion

As of last week, TSMC (TSM) saw a gain of 2.04%, marking five consecutive days of increases. Over the past five days, the stock rose by 9.10%, contributing to a year-to-date increase of 16.59%. The company’s market capitalization now stands at $11,854.84 billion.

TSMC's overseas subsidiary is planning to issue $100 billion in new stocks to enhance its foreign exchange hedging business, aiming to tackle currency fluctuations. This is the largest move by the company in addressing currency volatility. TSMC Global Ltd., responsible for managing overseas investments and hedging, has stated that the equity issue is intended to bolster its resilience against exchange rate fluctuations. This marks the third such transaction since 2024 and is the largest so far, executed during a period of New Taiwan dollar appreciation. These measures provide TSMC Global with greater financial flexibility in managing exchange rate risks.

The recent appreciation of the New Taiwan dollar has raised concerns in Taiwan about economic over-reliance on exports. Official calls to curb speculative activities followed the currency's record single-day climb in May, not seen since the 1980s. TSMC, as the largest company and exporter in Taiwan, faces potential downsides from the local currency's rise, which affects how dollar earnings from international sales are converted to Taiwan dollars, possibly necessitating higher foreign prices to maintain revenue.

In June, TSMC's CEO Wei Zhejia informed shareholders that rising local currency has led to a decrease in operating profit margins by several percentage points.

TSMC is set to become more integral to the chip industry as Counterpoint Research indicates companies like Apple, Qualcomm, and MediaTek might introduce 2nm system-on-chip (SoC) technology in the latter half of 2026, with TSMC as a key manufacturer. The adoption of smaller nodes is accelerating due to heightened demands for AI functionality in devices, leading to enhanced performance and efficiency. Apple is anticipated to be the primary driver of this technology shift, with over 80% of its product line expected to employ 3nm technology this year.

Furthermore, Counterpoint Senior Analyst Parv Sharma notes the growing need for advanced AI capabilities on complex devices, which encourages transitions to smaller, more efficient nodes. With increasing wafer costs and higher semiconductor content in smartphone SoCs, overall costs are rising, cementing the importance of 3nm and 2nm nodes as critical milestones.

Sharma predicts TSMC will begin the packaging test processes for 2nm nodes by late 2025, setting the stage for production in 2026. Apple, Qualcomm, and MediaTek are projected to unveil their flagship SoCs by year's end in 2026.

According to TrendForce data, TSMC is expected to hold two-thirds of the semiconductor foundry market by Q4 2024. Brady Wang, Counterpoint's research director, foresees TSMC maintaining its strong position due to its robust technological capabilities as the industry focuses more on advanced nodes. Wang underscores TSMC's dominance in nodes below 5nm and expects its share to increase from 87% to 89% by 2028-end.

TSMC's accelerated progress in the U.S., particularly in Arizona, reflects increasing domestic manufacturing demands. The company plans to speed up construction of its second plant (P2) with 3nm advanced manufacturing capability starting April 2025, and aims for completion by the third quarter of 2026, targeting operation by 2027.

The rapid construction, aimed to meet customer demand and respond to U.S. government tariffs, suggests installations could start as early as September next year, marking a substantial leap in timeline efficiency. Already, local engineering firms and suppliers expecting long-term profit improvements are gearing up to support TSMC's expansion schedule.

Despite these advancements, TSMC's reliance on Taiwan's production capabilities remains pivotal, particularly for advanced packaging which requires the returning of parts to Taiwan for completion. The first advance packaging plant (AP1) in Arizona is anticipated to begin construction next year, focusing on system integration chips, while its advanced CoWoS packaging will be processed in Taiwan.

The importance of Taiwan in TSMC’s strategic layout is underscored by the simultaneous construction of nine new plants and 11 production lines within the region, ensuring cutting-edge production in 2nm technologies and advanced packaging capabilities.