Letter to Shareholders
Dear Shareholders,
2017 was a solid year for TSMC as we delivered another year of record revenue, net income and earnings per share. TSMC’s technology leadership and manufacturing excellence, as well as our ongoing commitment to R&D and capacity investment, enabled us to capture opportunities in mobile devices, high-performance computing, the Internet of Things, and automotive semiconductors. Our continuing technological progress across the broad spectrum of advanced semiconductor process technologies lays a good foundation and builds a strong momentum for TSMC in the coming years...
“Being everyone’s foundry” is at the heart of TSMC strategy. Through the expansion of our technology and services, we build an open platform that welcomes all innovators in the semiconductor industry to realize their innovations and see their products brought to market in volume quickly. TSMC’s ability to address the increasing needs for specific technology requirements, through the most comprehensive range of technology offerings and our vast and flexible manufacturing capacity, enable us to cast a wide net to capture the varying waves of product innovations in the semiconductor industry.
In 2017, we saw computation expanding in the cloud and on the edge; major mobile products with enriched features adopted advanced processes; the need for safer, smarter and greener vehicles drove strong automotive semiconductor demand; and the readiness of ubiquitous connectivity provided exciting growth in the Internet of Things (IoT). AI (artificial intelligence) is expected to be embedded in all the above applications. As “everyone’s foundry”, we were able to participate in these growing segments of the industry and continued to expand our foundry market segment share.
We continued to make significant advances in leading-edge process technologies in 2017. 10-namometer set a new record in terms of ramp-up speed, and represented 10% of our total wafer revenue in its first year. Our industry-first 7-nanometer was transferred from R&D to manufacturing in 2017, and will begin volume production in the second quarter of 2018. Our 7-nanometer+ will follow and enter risk production later in 2018. We broke ground for Fab 18 in January 2018 for 5-nanometer, which will see extensive use of EUV (extreme ultraviolet) lithography with volume production targeted to start in 2020. Our proprietary CoWoS® (Chip on Wafer on Substrate) and InFO (integrated fan-out) advanced packaging solutions also continue to see enthusiastic adoption by customers in HPC (high performance computing), mobile and other high speed applications.
Highlights of TSMC’s accomplishments in 2017:
- Total wafer shipments increased 8.8 percent from 2016 to reach 10.5 million 12-inch equivalent wafers.
- Advanced technologies (28-nanometer and beyond) accounted for 58 percent of total wafer revenue, up from 54 percent in 2016.
- We deployed 258 distinct process technologies, and manufactured 9,920 products for 465 customers.
- TSMC’s market share in the total semiconductor foundry segment rose successively during the last eight years and reached 56 percent in 2017.
2017 Financial Performance
In 2017, our consolidated revenue totaled NT$977.45 billion, an increase of 3.1 percent over NT$947.94 billion in 2016, despite a significant appreciation in the NT dollar in this period. Net income was NT$343.11 billion and diluted earnings per share were NT$13.23. Both increased 3 percent from the 2016 level of NT$334.25 billion net income and NT$12.89 diluted EPS.
Gross profit margin was 50.6 percent compared with 50.1 percent in 2016, while operating profit margin was 39.4 percent compared with 39.9 percent a year earlier as R&D spending ratio increased. Net profit margin was 35.1 percent, a decrease of 0.2 percentage points from the prior year’s 35.3 percent.
TSMC further raised its cash dividend payment to NT$7.0 per share for 2016 profit distribution from NT$6.0 a year ago.
Technological Developments
In 2017, we have increased our R&D expense by 13.5% over 2016, with a large number of new technology introduction, to meet our customer needs and to extend our technology leadership.
TSMC’s 28/22-nanometer technology saw a record number of product tape-outs in 2017, thanks to its differentiated and diverse offerings. To further enhance the technology performance, we have also developed 22ULP (ultra-low power) and 22ULL (ultra-low leakage) technologies to address IoT and RF-related applications. We are confident that our continued performance enhancement, strong manufacturing capability, and flexible capacity can further strengthen our position in 28/22-nanometer node for years to come.
TSMC’s 16-nanometer FinFET technology remains robust as it enters its fourth year of volume production in 2018. Strong tape-out activities covered a variety of mainstream smartphones, cryptocurrency, AI, GPU and RF products. We continued to expand the technology portfolio by developing 12FFC (FinFET Compact) in 2017, which drives die size and power efficiency to serve demand in mobile, consumer electronics, digital TV and IoT applications.
10-nanometer FinFET technology started high-volume shipments in early 2017 and successfully supported a major customer’s new mobile product launches. Thanks to its aggressive geometric shrinkage, this technology provides excellent density/cost benefits to support customer needs in performance-driven market segments, including application processors, cellular baseband and ASIC CPUs. As a result, we expect a continued growth of our 10-nanometer business in 2018.
We successfully introduced TSMC’s 7-nanometer technology in 2017. Customer adoption of 7-nanometer is very strong and we received more than ten product tape-outs in 2017. A total of more than 50 customer product tape-outs are expected by the end of 2018. TSMC’s 7-nanometer+ technology will be introduced in 2018. We have already demonstrated the same yield level of 256M bit SRAM as compared to 7-nanometer.
Furthermore, TSMC’s 5-nanometer technology development is well on track for risk production in the first quarter of 2019. Both device performance and SRAM development vehicle yield improvement are on our plan. Customer test chips are already running in our fab.
In advanced packaging, TSMC’s second generation InFO technology began volume production for advanced mobile products in 2017, while InFO_oS (Integrated Fan-Out on Substrate) technology is expected to complete qualification in 2018 for HPC (high performance computing) products. We also extended our interposer CoWoS® technology to 12-nanometer and are actively developing 7-nanometer solutions to further support the requirements of HPC applications, such as AI, data server, and networking.
TSMC’s ecosystem, the Open Innovation Platform® (OIP), is an important factor in empowering customers to unleash their innovations with fast time-to-market. We continued to work with our ecosystem partners to expand our libraries and silicon IP portfolio in 2017 to more than 16,000 items. More than 9,000 technology files and over 300 process design kits were available to customers via TSMC-Online which saw more than 100,000 customer downloads in 2017.
Corporate Developments
In October 2017, I, as TSMC Chairman for the last thirty years, announced my plan to retire from the Company immediately after the Annual Shareholders’ Meeting in early June, 2018. All present directors of the board, except myself, have unanimously agreed to be nominated, and if elected, will serve as directors of the board during the next term. They all have agreed to have TSMC under the dual leadership of Dr. Mark Liu and Dr. C.C. Wei, who are TSMC’s presidents and Co-CEOs currently. Dr. Liu will be the Chairman of the Board, and Dr. Wei will be the Chief Executive Officer.
Capacity Plan
Annual Growth Rate
Capacity: million 12-inch equivalent wafers
Wafer Sales Plan
> 28nm wafer revenue
≤ 28nm wafer revenue
12-inch equivalent wafers.
Honors and Awards
TSMC received recognition for achievements in innovation, business information disclosure, corporate governance, sustainability, investor relations and overall excellence in management from organizations including Forbes, Fortune Magazine, Newsweek, CommonWealth Magazine, The Nikkei, PricewaterhouseCoopers, RobecoSAM and the Taiwan Stock Exchange. TSMC continued to receive multiple awards from Institutional Investor Magazine and was ranked among the top global companies by IR Magazine. TSMC was chosen once again as a component of the Dow Jones Sustainability Indices, becoming the only semiconductor company to be selected for 17 consecutive years. Meanwhile, we remained a major component in both MSCI ESG and FTSE4Good Emerging Index, reflecting our ongoing commitment to sustainability and corporate social responsibility.
Outlook
TSMC’s enduring business model, our ecosystem of partnerships across the industry, and our core values of integrity, commitment, innovation, and customer trust have well positioned us to serve as “everyone’s foundry” and enabled win-win partnership between TSMC and IC innovators. TSMC will continue to advance our semiconductor process technologies and strengthen our manufacturing capabilities to meet the ever-increasing requirements of our customers and stay at the forefront to unleash innovation.
As technology and end applications undergo unprecedented change for the new digital age, our dedicated foundry business model will remain the foundation of our success. Our business model will continue to lead our way in creating value and generating strong returns to our shareholders. I would like to personally thank our shareholders for your long-term support to TSMC. While we have come a long way over the past thirty years, there is still much more ahead of us to achieve, and I am ever more confident that the best is yet to come.
