Letter to Shareholders
Dear Shareholders,
2018 was a year of important milestones for TSMC. 2018 was our seventh consecutive year of record revenue, net income and earnings per share. We ramped our 7-nanometer technology to high volume successfully, at least a full year ahead of any other semiconductor player. We have strong customer engagement and tape out activity across diversified applications. For the first time in history, a most advanced logic technology, as an open platform, was available for the whole semiconductor industry.... With the strongest technology portfolio, the widest coverage of customers and the largest addressable market, we are poised in a better position than ever to catch the future growth opportunities for TSMC.
In today’s world, we see digital computation becoming increasingly ubiquitous. We see massive devices being connected, generating higher volumes of data. We see many new applications and products are all embedded with AI (artificial intelligence). Semiconductors are becoming ever more pervasive. The need for higher performance, lower power and a greater degree of system integration will drive further product advancements that TSMC will help enable.
The rapid ramp up of our 7-nanometer technology in 2018 allowed us to capture all leading smartphone launches and many more mobile and high performance computing applications. In 2018, our second generation 7-nanometer technology (N7+) entered risk production and is scheduled for volume production in 2019. N7+ will be the industry’s first commercially available EUV (extreme ultraviolet) process technology. At the same time, we continue our advanced technology development on 5-nanometer and target for volume production in the first half of 2020. Our advanced packaging solutions, with follow-on generations of InFOs (Integrated Fan-Out) and CoWoS® (Chip on Wafer on Substrate), continue to lead the industry in providing the most advanced system-level solutions.
Highlights of TSMC’s accomplishments in 2018:
- Total wafer shipments increased 2.9 percent from 2017 to reach 10.8 million 12-inch equivalent wafers.
- Advanced technologies (28-nanometer and beyond) accounted for 63 percent of total wafer revenue, up from 58 percent in 2017.
- We deployed 261 distinct process technologies, and manufactured 10,436 products for 481 customers.
- TSMC’s market share in the total semiconductor foundry segment rose successively during the last nine years and reached 56 percent in 2018.
2018 Financial Performance
Consolidated revenue reached NT$1,031.47 billion, an increase of 5.5 percent over NT$977.45 billion in 2017. Net income was NT$351.13 billion and diluted earnings per share were NT$13.54. Both increased 2.3 percent from the 2017 level of NT$343.11 billion net income and NT$13.23 diluted EPS.
TSMC generated net income of US$11.64 billion on consolidated revenue of US$34.20 billion, which increased 3.3 percent and 6.5 percent respectively from the 2017 level of US$11.27 billion net income and US$32.11 billion consolidated revenue.
Gross profit margin was 48.3 percent compared with 50.6 percent in 2017, while operating profit margin was 37.2 percent compared with 39.4 percent a year earlier. Net profit margin was 34.0 percent, a decrease of 1.1 percentage points from 2017’s 35.1 percent.
TSMC further raised its cash dividend payment to NT$8.0 per share for 2017 profit distribution from NT$7.0 in the prior year.
Technological Developments
In 2018, we continued to increase our R&D investment to US$2.85 billion to expand our technology offerings and to extend our technology leadership.
We leveraged our leadership in technology at 28-nanometer and developed 22-nanometer technologies to further enhance performance and density in 2018. Our 22ULP (ultra-low power) and 22ULL (ultra-low leakage) technologies are suitable for a wide range of applications in IoT (Internet of Things), RF (Radio Frequency) and wearable devices. We also extended our 16-nanometer technologies to 12FFC, which provides further enhancement in power, performance, and density. On specialty technologies, 16FFC RF has proven to be able to provide the foundry’s first volume produced 5G mobile network chips based on FinFET in 2018.
In 2018, we successfully ramped up our 7-nanometer technology and set a new industry record in production ramp. More than 40 customer product tape-outs have been completed and we expect to receive more than 100 additional product tape-outs in 2019. The 7nm customer products include mobile devices, game consoles, AI, CPUs, GPUs and networking devices. Our second generation 7nm (N7+) technology entered risk production in August 2018, and will be the industry’s first commercially available EUV process technology.
Our 5-nanometer technology development is well on-track for risk production in the second quarter of 2019. We have made significant progress in transistor and interconnect performance, yield learning and reliability qualification. Customer product tape-outs are scheduled in the first half of 2019, with volume production next year. We expect to see a significant number of customers leverage our 5-nanometer to establish leadership positions for their products. Furthermore, our 3-nanometer technology has entered the full development stage.
TSMC has been offering advanced packaging technology to integrate advanced SoCs, high bandwidth memories, and integrated passive device to enhance system-level performance. In 2018, we offered the 4th generation InFO solutions with finer interconnect line width and spacing to enable both mobile and high performance computing products. TSMC’s CoWoS® offers a platform for heterogeneous integration with increasing interposer sizes. In May 2018, we announced TSMC-SoICTM (System-on-Integrated Chips) solution, a clear industry-leading 3D IC packaging solution, integrating multiple heterogeneous chiplets with close proximity to deliver even higher system performance.
TSMC’s ecosystem, the Open Innovation Platform® (OIP), is an important factor in empowering customers to unleash their innovations with fast time-to-market. In October 2018, we launched our virtual design environment (VDE) that allows our customers to conduct their design activities in a secure and safe cloud environment that significantly increases their design productivity. We continued to work with our ecosystem partners to expand our libraries and silicon IP portfolio to more than 20,000 items. More than 9,000 technology files and over 300 process design kits are available to customers via TSMC-Online which saw more than 100,000 customer downloads in 2018.
Corporate Developments
After having led the company for over 31 years, TSMC’s Founder, Dr. Morris Chang, retired from the Company after the Annual Shareholders’ Meeting on June 5, 2018. At the meeting, TSMC shareholders elected a new Board of Directors, which then convened to elect Dr. Mark Liu as Chairman and Dr. C.C. Wei as Chief Executive Officer (CEO) and Vice Chairman.
Capacity Plan
Wafer Sales Plan
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, CommonWealth Magazine, The Nikkei, Thomson Reuters, PricewaterhouseCoopers, RobecoSAM and the Taiwan Stock Exchange. TSMC continued to receive multiple awards from Institutional Investor Magazine and IR Magazine. We were chosen once again as a component of the Dow Jones Sustainability Indices, becoming the only semiconductor company to be selected for 18 consecutive years. TSMC was also rated “Prime” by Institutional Shareholder Services, and “Leader” by Sustainalytics for our performance in sustainability. 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
2019 is a year we face business headwinds from weakening global macroeconomic conditions and trade tensions between countries. TSMC will be working on the fundamentals of our business and will accelerate our technology differentiation. We will also strengthen our cybersecurity and proprietary information protection. When the clouds pass, we resolve to emerge as a stronger semiconductor force.
We believe the ongoing megatrend of 5G and AI will fuel the future growth of the semiconductor industry. With the broadest and most advanced technology portfolios, the relentless pursuit of manufacturing excellence and trusted customer relationships, TSMC is best-positioned to lead the industry to provide the most advanced and comprehensive solutions for future applications in the semiconductor sector.
TSMC’s four core values of Integrity, Commitment, Innovation and Customer Trust remain as the cornerstone of our Company culture. They will continue to guide our every aspect in the way we do business as we navigate towards future opportunities. We will continue to commit to world-class governance, sustainability, and good returns to our shareholders. We thank you for your trust and commitment to us, and look forward to a long and profitable future together
