Letter to Shareholders
Dear Shareholders,
2020 was a devastating year for the entire world due to the COVID-19 pandemic, and our thoughts and hearts go out to all those who have been affected. With the spread of COVID-19, millions of lives were lost, many cities entered lock down, and the world experienced massive economic and societal disruptions. However, semiconductor industry demand remained resilient, as trends such as work-from-home and distance learning emerged to help to accelerate the digital transformation.... At TSMC, our top priority is to protect the health and safety of our employees, and ensure our global fab operations continue delivering to customers. While we have been successful so far, we will remain vigilant and continue our utmost efforts to weather this pandemic.
For TSMC, although 2020 was a year of extraordinary challenges, it was also a year of significant growth and progress. Facing upheaval brought by the global COVID-19 pandemic as well as geopolitical tensions, we worked dynamically with our customers, and doubled down our commitment to technology leadership, manufacturing excellence, and customer trust. In 2020, we delivered an eleventh consecutive year of record revenue, thanks to strong demand coming to our industry-leading 5-nanometer (N5) and 7-nanometer (N7) technologies. Our revenue increased 31.4% year-over-year in US dollar terms, as compared to about 10% year-over-year growth for the semiconductor industry.
We continued to focus on the fundamentals of our business in 2020 by enriching our R&D infrastructures, enlarging our talent pipeline, strengthening our information protection and cybersecurity, and accelerating our technology differentiation.
In 2020, fueled by the industry megatrends of 5G and high performance computing (HPC) applications, both driving semiconductor content enrichment, we increased our 2020 capital spending to US$17.2 billion. As TSMC enters another period of higher growth, we will continue to invest to capture the opportunities that will follow.
In 2020, we successfully ramped our industry-leading N5 technology, to enable our customers’ innovations for both smartphone and HPC applications. As the foundry industry’s most advanced solution with the best performance, power and area (PPA), N5 further expands our customer product portfolio and increases our addressable markets.
In its third year of ramp, our 7-nanometer family, which includes N7, N7+ and N6, continued to see very strong demand across a wide spectrum of products from smartphone, HPC, Internet of Things (IoT) and Automotive applications.
Our 3-nanometer technology will be another full node stride from our N5, and offer the most advanced foundry technology in both PPA and transistor technology when it is introduced.
In 2020, TSMC introduced 3DFabric™, an umbrella of the company’s fast-growing portfolio of 3DIC system integration solutions under one family of technologies. Our differentiated chiplet and heterogeneous integration technologies drive better power efficiency, greater compute density, and smaller form factor benefits for our customers, while shortening their time-to-market. We are working with several product leaders on 3DFabric™ to enable chiplet architectures.
Highlights of TSMC’s accomplishments in 2020:
- Total wafer shipments were 12.4 million 12-inch equivalent wafers as compared to 10.1 million 12-inch equivalent wafers in 2019.
- Advanced technologies (16-nanometer and beyond) accounted for 58 percent of total wafer revenue, up from 50 percent in 2019.
- We deployed 281 distinct process technologies, and manufactured 11,617 products for 510 customers.
- TSMC produced 24 percent of the world semiconductor excluding memory output value in 2020, as compared to 21 percent in the previous year.
2020 Financial Performance
Consolidated revenue reached NT$1,339.255 billion, an increase of 25.2 percent over NT$1,069.99 billion in 2019. Net income was NT$517.89 billion and diluted earnings per share were NT$19.97. Both increased 50.0 percent from the 2019 level of NT$345.26 billion net income and NT$13.32 diluted EPS.
TSMC generated net income of US$17.60 billion on consolidated revenue of US$45.51 billion, which increased 57.5 percent and 31.4 percent respectively from the 2019 level of US$11.18 billion net income and US$34.63 billion consolidated revenue.
Gross profit margin was 53.1 percent compared with 46.0 percent in 2019, while operating profit margin was 42.3 percent compared with 34.8 percent a year earlier. Net profit margin was 38.7 percent, an increase of 6.4 percentage points from 2019’s 32.3 percent.
In 2020, total cash dividend payments to shareholders sustained at NT$10 per share.
Technological Developments
In 2020, we continued to increase our investment in R&D to US$3.72 billion to unleash our customers’ innovations and extend our technology leadership.
Our 3-nanometer will offer up to 70% logic density gain, up to 15% performance gain and up to 30% power reduction as compared with N5. N3 technology development is on track with good progress. N3 will offer complete platform support for both mobile and HPC applications. Volume production is targeted in second half of 2022.
Our 5-nanometer (N5) technology successfully entered volume production in the second quarter of 2020 and experienced a strong ramp in the second half. We plan to offer continuous enhancements, such as N4, to extend the leadership of our 5-nanometer family. N4 is a straightforward migration from N5 with compatible design rules, while providing further performance, power and density enhancements for the next wave 5-nanometer products. N4 volume production is scheduled in 2022.
In its third year, 7-nanometer technology continued to see one of TSMC’s fastest ramp ups in volume production, shipping more than one billion good dies in this process for hundreds of products from dozens of customers. Our N7+ also entered its second year of ramp using EUV lithography technology, while N6, which provides a clear migration path for next wave 7-nanometer products, entered volume production at the end of 2020. N6 will further extend our 7-nanometer family well into the future.
Our 16nm/12nm family has received over 650 customer product tape-outs across smartphone, HPC, storage and consumer electronics applications. We also unveiled our N12e™ process, bringing TSMC’s world-class FinFET transistor technology to AI-enabled IoT devices, by providing both powerful computing performance and outstanding power efficiency.
The value of our technology platforms are evolving to include logic wafer scaling, design-technology co-optimization, and 3DIC. We have developed a comprehensive 3DIC technology roadmap to enhance system-level performance and drive greater energy efficiency. These technologies include chip stacking solutions such as SoIC (System on Integrated Chip), as well as advanced packaging solutions such as InFO (Integrated Fan-Out) and CoWoS® (Chip on Wafer on Substrate). TSMC’s CoWoS® continued to integrate with larger interposer size for heterogeneous integration. We are also working with customers on TSMC-SoIC™, which is expected to be first adopted by HPC applications where bandwidth performance, power efficiency, and form factors are aggressively pursued.
TSMC’s ecosystem, the Open Innovation Platform®, empowers our 510 distinct customers to design in a safe and secure cloud environment, to unleash their innovations with fast time-to-market. We also worked with our ecosystem partners to expand our libraries and silicon IP portfolio to over 35,000 items in 2020. More than 12,000 technology files and over 450 process design kits, from 0.5-micron to 3-nanometer, are available to customers via TSMC-Online. We saw more than 100,000 customer downloads in 2020.
Corporate Social Responsibility
The foundation of TSMC’s corporate social responsibility is a sound corporate governance built upon our core values that balances the interests of all stakeholders. Guided by the UN Sustainable Development Goals, our Corporate Social Responsibility Executive Committee has set our CSR focuses to be on driving green manufacturing, building a responsible supply chain, creating an inclusive workplace, developing STEM talent, and caring for the underprivileged.
Joining in the global effort to combat COVID-19, TSMC leveraged our expertise in technology, global procurement and supply chain management with a budget of US$20 million to aid communities near TSMC sites with urgent needs in Taiwan, Mainland China, Japan, Europe and the United States. This included donations of personal protection equipment and ventilators to hospitals, public health agencies, and related parties; providing relief to vulnerable communities with immediate food, shelter, and medical aid; and collaborating with leading institutes on COVID-19 diagnostics, vaccines and therapeutics development.
As a responsible corporate citizen, TSMC is dedicated to fighting climate change and protecting the environment of the world that we share. By 2030, we target to supply 25% of power consumed by our fabs, and 100% of power consumed for non-fab facilities, using renewable energy. In 2020, we signed the largest renewables corporate power purchasing agreement in the world, and committed to renewable energy purchase agreements totaling 1.3 gigawatts. We have further committed to supplying 100% of TSMC’s power from renewable energy and generating zero indirect carbon emissions from electricity consumption by 2050, enabling us to become the first semiconductor company to join the RE100 renewable energy initiative in 2020.
Corporate Developments
In May 2020, TSMC announced its intention to build and operate an advanced semiconductor fab in the United States, in the state of Arizona. This fab will start with 5-nanometer technology at 20,000 wafers per month capacity. Production is targeted to begin in 2024. A U.S. fab will enable TSMC to expand our technology ecosystem, better serve our customers and partners, and extend our reach for global talents.
Capacity Plan
Wafer Sales Plan
12-inch equivalent wafers.
Honors and Awards
TSMC received recognition for achievements in innovation, corporate governance, sustainability, investor relations and overall excellence in management from organizations including Forbes, Fortune Magazine, CommonWealth Magazine, Business Today, RobecoSAM (S&P Global), RE100 and the Taiwan Stock Exchange. TSMC also received the prestigious 2021 IEEE Corporate Innovation Award, honoring the Company’s leadership in developing 7-nanometer foundry technology and enabling the innovations of IC designers everywhere. In sustainability, we were chosen once again as a component of the Dow Jones Sustainability Indices, becoming the only semiconductor company to be selected for 20 consecutive years. TSMC also received recognition as one of Wall Street Journal’s “100 Most Sustainably Managed Companies” and Corporate Knight’s 2020 “Global 100 Most Sustainable Corporations”. Meanwhile, we remained a major component in both various MSCI ESG and FTSE4Good indices. In investor relations, TSMC continued to receive multiple awards from Institutional Investor Magazine.
Outlook
The challenges of the COVID-19 pandemic have only renewed TSMC’s dedication to enabling innovations that improve peoples’ lives. Digital technology has helped us weather the disruptions of the COVID-19 pandemic by allowing people to work, learn, and play in the safety of their homes, and also by maintaining our bonds with distant loved ones during difficult times. Beyond that, it has accelerated a digital transformation of society, with technology becoming increasingly essential in people’s lives.
As we enter the 5G era, the performance of digital computing for AI and 5G is insatiable. A smarter and more intelligent world will require massive increases in computation performance and greater need for energy efficient computing, fueling strong demand for advanced semiconductor technologies. With our leadership in advanced process technologies, our broad portfolio of specialty technologies and 3DIC solutions, our unparalleled manufacturing capabilities, and deep collaborative relationships with customers, we are well positioned to capture the growth from these megatrends in the years ahead.
While macroeconomic uncertainties may linger, we will continue to work on the fundamentals of our business to further extend our technology differentiation. We will adhere to our dedicated foundry business model, and collaborate with all the IC innovators to unleash innovation. We will continue to conduct our business with integrity, sell our value, and treat all customers fairly. We will sharpen our Trinity of Strengths of technology leadership, manufacturing excellence, and customer trust, so that we may continue to fulfill our mission to be the trusted technology and capacity provider of the global logic IC industry for years to come.
We remain dedicated to world-class governance, sustainability, and good returns to our shareholders. We thank you for the trust and commitment you have placed in TSMC. We are excited about our future, and look forward to a long and prosperous relationship together.
