Taiwan Raises Electricity Prices, Squeezing Chipmakers' Profits

Taiwan's economic ministry announced a rise in electricity prices starting April, impacting the island's crucial semiconductor industry. The move aims to stabilize the finances of Taiwan Power Company, but it comes at a cost for chipmakers facing pressure on their profit margins.

The new policy implements a tiered system, with the biggest hikes targeting large consumers exceeding 500 million kilowatt-hours annually. These include major semiconductor companies, who anticipate a squeeze on their profitability.

Chipmakers Face Margin Pressure

  • DRAM Manufacturers: Companies like Nanya foresee a 1% to 3% increase in production costs due to rising electricity prices, translating to lower gross profit margins.
  • Wafer Foundries: Power Semiconductor expects a 15% jump in electricity expenses, leading to a roughly 1.5% rise in operating costs.
  • TSMC: The world's leading foundry is projected to experience a 15% increase, potentially impacting gross margins by 0.5% to 1%. However, Taiwanese media estimates TSMC, due to its exceptional size, will be subject to a steeper 25% increase, affecting margins by 0.14%.
Despite the cost increases, TSMC maintains its long-term gross profit margin target of over 53%. The company emphasizes its commitment to energy conservation, citing a 13% cumulative energy saving in 2022 and a 700 million kWh annual reduction in power usage. TSMC is also steadily increasing its reliance on renewable energy sources, which currently surpasses 12%, with its overseas operations aiming for complete renewable energy usage.

For TSMC, a potential power shortage poses a more significant threat than rising electricity costs. In 2022, the company consumed 7.54% of Taiwan's total electricity, and projections suggest this could climb above 10% in the future. Given the nature of semiconductor production, a power outage could inflict billions of Taiwanese dollars in losses on TSMC.

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