TSMC CFO on Currency Volatility Impact on Business
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TSMC says FX is ‘big uncertainty’
TSMC says FX is ‘big uncertainty’ and is to constantly review hedging strategies. Every 1 percent appreciation of the New Taiwan dollar against the greenback would reduce revenue by 1 percent. TSMC shares rose 2.21 percent in Taipei trading, after its stock that trades in the US rose 3.4 percent overnight. The firm last month said that it is set to inject US$10 billion in capital into an overseas unit to shore up currency hedging operations.TSMC is spending US$165 billion to build capacity in Arizona, part of a global expansion intended to help meet future demand for the components fundamental to artificial intelligence (AI) chip demand. The company envisions that about 30 percent of its 2-nanometer capacity will be located in Arizona eventually, but the timing depends in part on the geopolitical environment and tariffs on semiconductors, with the potential to shake up a tech-up a world around the world.
CURRENCY WOES: A company executive said that every 1 percent appreciation of the New Taiwan dollar against the greenback would reduce revenue by 1 percent
Bloomberg
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) sees currency volatility as a “big uncertainty” to its margins and is to constantly review hedging strategies to manage the impact, TSMC chief financial officer Wendell Huang (黃仁昭) said.
“Foreign exchange rate is something that we cannot control, but there were instances before where it was not in our favor, but we managed to lean on other factors so that we are able to keep our profitability, and that’s what we are planning to do,” Huang said in an interview yesterday.
“We use different hedging alternatives. The first one is to just simply sell the US dollar in the spot market,” Huang said. “We also use forwards contracts, and we also move part of the cash, the US dollar cash, to an offshore holding company whose financial statements are denominated in the US dollar.”
The Taiwan Semiconductor Manufacturing Co logo at its headquarters in Hsinchu is pictured on Oct. 20, 2021. Photo: Chiang Ying-ying, AP
Huang’s comments came after TSMC, the world’s biggest contract chipmaker, on Thursday reported better-than-expected second-quarter earnings and raised its outlook for this year’s revenue, a move that underscores resilient demand from the global artificial intelligence spending spree.
TSMC shares rose 2.21 percent in Taipei trading, after its stock that trades in the US rose 3.4 percent overnight.
Despite the bright prospects, TSMC and other Taiwanese exporters, as well as life insurers with heavy exposure to US assets, face challenges from a red-hot New Taiwan dollar that has surged more than 11 percent this year against the greenback.
During an earnings call on Thursday, Huang warned TSMC’s third-quarter performance would likely face a bigger hit from a strong NT dollar. Huang estimated that every 1 percent appreciation of the NT dollar against the greenback would reduce the firm’s revenue by 1 percent.
The firm last month said that it is set to inject US$10 billion in capital into an overseas unit to shore up currency hedging operations.
To help soften the blow from a stronger NT dollar, which has rallied amid equity fund inflows and exporters’ US dollar sales, Taiwanese authorities have taken steps, including market interventions and warnings against speculative bets.
Bloomberg News earlier this month reported that the central bank is seeking feedback on a plan to tighten currency purchases by foreign stock investors.
TSMC will remain prudent about spending this year while expanding globally to meet surging artificial intelligence (AI) chip demand, as the main supplier of chips to Apple Inc and Nvidia Corp is sitting tight for now on plans to set aside a maximum US$42 billion for capital expenditure this year, Huang said.
TSMC is spending US$165 billion to build capacity in Arizona, part of a global expansion intended to help meet future demand for the components fundamental to AI. On Thursday, it raised its full-year sales growth forecast to 30 percent, reinforcing expectations that big tech firms from Meta Platforms Inc to Google will keep spending billions of dollars on data centers.
US Secretary of Commerce Howard Lutnick said the administration aims to bring the full chip supply-chain back to the US from Asia during a congressional hearing this year. Huang said it will take years for the US to achieve that.
Still, TSMC is accelerating its timeline in the US. Huang said the company’s second plant in Arizona may start volume production by 2027, pulling its schedule in by several quarters. The Taiwanese chipmaker may also speed up construction of a third plant due to customer demand. The company envisions that about 30 percent of its 2-nanometer or more advanced capacity will be located in Arizona eventually.
That timing depends in part on the macroeconomic and geopolitical environment. Trump is threatening to levy tariffs on semiconductors and electronics, with the potential to shake up a tech supply chain that often relies on shipping components at speed around the world. Huang said the uncertainties prompted TSMC to get a bit conservative about their current forecast.
“We are mindful about macro uncertainties these days, primarily related to tariff policies, so we are being prudent about planning our capex,” Huang said.
TSMC’s Capital Expenditure Strategy Amid Tariff Uncertainties: Navigating Geopolitical Risks in the Semiconductor Supply Chain
TSMC’s 2025 CapEx is a testament to its confidence in the AI chip market. A proposed 32% reciprocal tariff on Taiwanese goods could erode TSMC’s gross margins. The semiconductor supply chain is undergoing a seismic shift as companies balance U.S. incentives with the costs of reshoring. Despite the risks, the semiconductor industry is on track for a 7.5% CAGR through 2030, according to a report by The Semiconductor Research Association (SRC) The SRC says investors must remain vigilant on semiconductor market volatility and take a nuanced approach to investing in the sector. It offers three key strategies: diversify exposure across the supply chain, hedge against currency fluctuations, and diversify business models. The report is published by SRC in association with the SRC Institute of Semiconductors, a think tank based in Taiwan. It is also published by the SSC Research Association, a nonprofit organization based in Taipei, Taiwan. For more information, visit SRC’s website.
The TSMC Dilemma: Balancing AI Demand and Tariff Risks
TSMC’s 2025 CapEx is a testament to its confidence in the AI chip market, which is projected to generate $150 billion in sales this year alone. The company’s advanced 3nm and 5nm nodes are already powering 73% of its wafer revenue, while its 2nm process with Gate-All-Around (GAA) transistors is set to debut in late 2025. However, this optimism is tempered by the specter of U.S. tariffs. A proposed 32% reciprocal tariff on Taiwanese goods—part of a broader “small yard, high fence” strategy—could erode TSMC’s gross margins, which have already declined by 3 percentage points due to the Taiwan dollar’s appreciation.
To mitigate these risks, TSMC is diversifying its manufacturing footprint. The company’s $100 billion U.S. investment under the CHIPS Act is not just about securing subsidies but also about insulating itself from trade wars. Yet, the CHIPS Act itself is a moving target. The Trump administration’s push to repeal the program and impose stricter conditions on grant recipients has created uncertainty for TSMC and its peers. For example, TSMC’s Arizona-based fabs may face delays if funding is withheld for not meeting expansion targets.
Industry-Wide Shifts: Supply Chain Diversification and Advanced Packaging
TSMC is not alone in recalibrating its strategy. The semiconductor supply chain is undergoing a seismic shift as companies balance U.S. incentives with the costs of reshoring. Samsung, for instance, has delayed its Texas fab project amid CHIPS Act funding delays, while ASML has slashed its 2025 growth forecast to 15% from 20% due to geopolitical uncertainty.
A key trend is the rise of advanced packaging technologies, such as TSMC’s CoWoS and Intel’s EMIB. These innovations enable heterogeneous integration of AI accelerators, reducing reliance on monolithic chips. Production capacity for CoWoS is expected to double to 70,000 wafers per month in 2025, driven by demand from NVIDIA’s H100 GPUs and other HPC applications. For investors, this signals a shift in value creation from pure fabrication to complex packaging and system-level integration.
Meanwhile, U.S. export restrictions on advanced inspection equipment and materials like gallium and germanium are forcing companies to diversify sourcing. The result is a surge in nearshoring and friendshoring initiatives, with India, Poland, and Malaysia emerging as alternative hubs. This fragmentation of the supply chain is likely to increase CapEx for logistics and inventory management, further complicating ROI calculations.
Investment Strategies: Hedging Geopolitical Risks
For investors, the semiconductor sector’s volatility demands a nuanced approach. Here are three key strategies:
Diversify Exposure Across the Supply Chain
Avoid over-concentration in foundries like TSMC. Instead, consider a mix of players: AI Chip Leaders: NVIDIA, AMD, and Baidu Kunlun. Foundries: TSMC, Samsung, and Intel. Equipment Providers: ASML, Lam Research, and Applied Materials. Materials Suppliers: Applied Materials, Tokyo Electron, and Shin-Etsu Chemical.
Hedge Against Currency and Tariff Risks
TSMC’s gross margin sensitivity to currency fluctuations (1% TWD appreciation = 0.4% margin decline) underscores the need for hedging. Investors should monitor the U.S. dollar index and consider options or futures contracts to mitigate exposure. Prioritize Companies with Resilient Business Models
Firms with diversified revenue streams and strong balance sheets are better positioned to weather policy shifts. TSMC’s $38–42 billion CapEx is backed by a $13.7 billion Q2 2025 profit, but smaller players like SkyWater Technology or Tower Semiconductor may offer higher upside if they secure CHIPS Act funding.
The Road Ahead: Growth and Caution
Despite the risks, the semiconductor industry is on track for a 7.5% CAGR through 2030, driven by AI and HPC demand. However, investors must remain vigilant. A 25% U.S. tariff on semiconductors could reduce TSMC’s U.S. revenue by $6.4 billion, while a CHIPS Act repeal could stall $100 billion in U.S. investments.
For those willing to navigate the turbulence, the sector offers compelling opportunities. TSMC’s 2nm roadmap, ASML’s EUV lithography advancements, and the AI chip market’s $500 billion 2028 projection are tailwinds worth betting on. But as TSMC’s CFO Wendell Huang notes, “Managing macroeconomic risks is as critical as chasing growth.”
In the end, the semiconductor industry’s future hinges on a delicate balance: leveraging AI-driven demand while insulating against geopolitical shocks. For investors, the key is to align their portfolios with companies that can thrive in this high-stakes environment.