The world’s largest contract chip maker, Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM), is planning to expand its investment in Japan, a WSJ report stated. The expansion would be an addition to the already under-construction manufacturing plant on Japan’s southern island of Kyushu.
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The step is seen as a means of diversifying geopolitical risks. Taiwan has friendly ties with the U.S. and depends on arms supplies from America. Meanwhile, China is one of the major importers of TSM’s chips. Also, American companies, including Apple (AAPL) and Qualcomm (QCOM), are a few major companies that use TSM’s chips in their products.
The current rough scenario between the U.S. and China, and China’s dominance over Taiwan has made TSM’s position precarious. Furthermore, the U.S. and its allies, including Japan, are worried about the reliance of major automakers and phone makers on the Chinese semiconductor industry as well as on Taiwan.
Notably, Japan wants to regain its supremacy as the world’s biggest player in chip manufacturing. Japan aims to boost its domestic chip revenue to nearly $100 billion by 2030 and also announced $5.2 billion in subsidies last year, the WSJ report added.
Hence, the government is also giving subsidies to TSM for building its chip manufacturing plant in the country. Subsidies include funding half of the plant’s construction costs, up to a maximum of $3.2 billion.
TSM’s current manufacturing plant will produce only simpler chips used in vehicles and sensors. The plant is expected to start deliveries in late 2024. Should the new plant take shape, it would focus on more advanced chip manufacturing, sources said.
Taiwan Semi’s Current Position
Despite the current macroeconomic challenges and the dimming demand for personal computers and smartphones, Taiwan Semi managed to report robust third-quarter results. Moreover, the supply chain issues that began to impact the chip industry last year have started to normalize. Hence, easing the pressure on chip makers. TSM has also decided to scale back on its capital expenditure in response to the softening demand.
Furthermore, the U.S.’s ban on supplying Chinese chipmakers with technology to make chips has added to TSM’s worries. However, the company has secured a year’s license to secure an exemption from the rule.
Is TSM Buy or Sell?
On TipRanks, TSM stock commands a Strong Buy consensus rating. This is based on four Buys versus one Hold rating during the past three months. The average Taiwan Semi stock prediction of $257.25 implies a massive 304.1% upside potential to current levels. Meanwhile, the stock has lost nearly 50%.
