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TSMC Gets Billions in Pre-Payments for Fab Capacity

TSMC
(Image credit: TSMC)

Long-term supply agreements are nothing new in the semiconductor industry. Both fabless chip designers and contract makers of chips prefer stable supply and demand, respectively. But in a world with severely constrained supply, chip developers are willing to pay for their integrated circuits well in advance, which is a boon for foundries.

Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest foundry, disclosed in a filing that it received temporary receipts of around $3.825 billion (NT$106,33 billion) from customers as of September 30, 2021. Temporary receipts from TSMC's customers are payments received to retain its capacity. To put the number into context, TSMC earned some $14.926 billion (NT$414.67 billion) in Q3 2021, so $3.825 billion is a sizeable sum for the company.

These advance payments are made under agreements with specific terms and conditions. As a result, TSMC does not immediately recognize these payments as revenue, whereas its clientele does not recognize them as current inventory. Meanwhile, "when the terms and conditions set forth in the agreements are subsequently satisfied, the treatment of temporary receipts will be determined by mutual consent."

TSMC did not disclose its customers willing to pay in advance, but big companies like AMD and Nvidia are likely suspects.

"We have placed non-cancellable inventory orders for certain products in advance of our normal lead times, paid premiums and provided deposits to secure normal and incremental future supply and capacity and may need to continue to do so in the future," a statement by Nvidia reads.

As of August 1, 2021, Nvidia had $195 million in prepaid expenses, up from $142 million on January 31, 2021. Nvidia does not disclose whether it made advance payments to TSMC or Samsung Foundry, but all contract makers of semiconductors are likely accepting such payments these days. 

AMD also made substantial prepayments in its long-term supply agreements. As of September 25, 2021, its prepayments totaled $355 million, up from $299 million a year before. AMD has supply agreements with TSMC and GlobalFoundries.

Qualcomm does not disclose how much it pays for chips in advance. Yet, the company recently confirmed that it "entered into several" and expected "to enter into additional, multi-year capacity purchase commitments with certain suppliers of our [ICs]" in a bid to "secure commitments for future supply."

Without a doubt, the semiconductor industry is now in a very challenging position, with chip designers desperate to pay in advance for capacity. Likewise, foundries are willing to pay in advance for manufacturing tools. In this situation, it is not surprising why chips are getting more expensive. 

  • samopa
    ""We have placed non-cancellable inventory orders for certain products in advance of our normal lead times, paid premiums and provided deposits to secure normal and incremental future supply and capacity and may need to continue to do so in the future," a statement by Nvidia reads. "

    Exactly how much GPU (Ampere) can they produce in a year to guarantee steady supply of graphics card in the market so their price can be "normal" again.
    Reply
  • spentshells
    It'll be bananas when Nvidia moves to 7+ from 8 nm. AMD better come hot on the press with that 3D memory in line for their GPUs as I don't think they can take the hit when Nvidia gets off a Samsung 8nm.

    I m hoping for hbm3 and 3D cache on a RDNA2 revision, but that feels like CDNA thing. Or another generational deal. All the excitement an I only play CSGO and one player games.

    samopa said:
    ""We have placed non-cancellable inventory orders for certain products in advance of our normal lead times, paid premiums and provided deposits to secure normal and incremental future supply and capacity and may need to continue to do so in the future," a statement by Nvidia reads. "

    Exactly how much GPU (Ampere) can they produce in a year to guarantee steady supply of graphics card in the market so their price can be "normal" again.
    Reply
  • bkuhl
    I'd be a sizable chunk of that money is from Apple. With them moving their whole line to M1 variants over the past year, they need to guarantee supply.
    They also have the deep pockets to pay long in advance for capacity...
    Reply
  • domih
    Fabless chip designers know they will sell all the chips they can deliver.

    You will buy the chips and you will like them.

    :love:
    Reply
  • LuxZg
    bkuhl said:
    I'd be a sizable chunk of that money is from Apple. With them moving their whole line to M1 variants over the past year, they need to guarantee supply.
    They also have the deep pockets to pay long in advance for capacity...

    My thoughts exactly. If Nvidia and AMD pay 200-300 million each, Apple is probably around a full billion. More so because they are aiming to be a node ahead of other customers.
    Reply
  • korekan
    at one point i agree IP need to be protected.
    on the other point if the factory destroyed because of disaster, are we gonna going back to day before we have computer everywhere?
    Reply