TSMC's Business Generates High Profitability Despite Its Enormous Costs
The Taiwanese company TSMC operates with a unique business model: manufacturing chips on contract for other companies, known as foundry. This approach, focused on high-performance logic processors, brings it good profits. However, the scale of its operation requires massive and constant capital investment to build cutting-edge factories. 💰
An Unexpected Turn in Sector Profitability
Historically, the memory chip market, dominated by giants like Samsung and SK Hynix, has shown very marked cycles with long phases of losses. This is due to overcapacity and fierce price competition. However, the dynamics changed in the last quarter of last year.
Key Factors of the Change:- A sustained increase in DRAM and NAND Flash chip prices.
- A strategic adjustment in supply by memory manufacturers.
- Demand that remained stable, allowing margins to improve quickly.
For once, manufacturing where everyone stores their data yielded more profits than manufacturing where everyone thinks.
Contrast of Models: Constant Investment vs. Tactical Adjustment
While TSMC must shell out tens of billions to maintain its technological leadership, memory manufacturers can influence global prices by adjusting their production levels. This last quarter demonstrated how that capability can turn the profitability tables in a short time. 🔄
Characteristics of Each Segment:- Foundry (TSMC): High entry and upgrade costs, but more predictable revenue streams due to long-term contracts.
- Memory (Samsung/Hynix): Lower technological barrier per node, but direct exposure to market price volatility.
- Result: A segment traditionally seen as less stable managed to outperform in profitability the business considered more solid.
Reflection on Market Volatility
This episode underscores the inherent volatility of electronic component markets. Balances between supply and demand can quickly alter profit margins across different segments. Although TSMC's model remains fundamental to the industry, the event reveals that no niche is completely safe from market swings. The lesson is clear: in semiconductor manufacturing, profitability can switch sides in a matter of months. ⚖️