Amid a historic fluctuation in exchange rates leading to a surge in the value of the New Taiwan Dollar, the profitability of Taiwanese semiconductor corporations such as TSMC, which derive most of their revenue from exports, is expected to be impacted. The Taiwanese government, currently negotiating a reciprocal tariff with the U.S., is predicted to allow an increase in currency value, which is anticipated to further elevate the New Taiwan Dollar for the time being. TSMC has begun seeking cost-cutting measures from companies involved in its supply chain, including materials, equipment, and components, as a defensive strategy for profitability.
According to the foreign exchange market on the 7th, the New Taiwan Dollar recorded its highest volatility in 37 years since 1988 on the 2nd. Over the course of two trading days on the 2nd and 5th, the New Taiwan Dollar skyrocketed more than 9% against the U.S. dollar, rising to NT$29 per dollar. On that afternoon, it even surpassed NT$30. The New Taiwan Dollar typically has an annual average volatility of only 6% to 7%. David Chao, an Invesco Global Market Strategist, noted, "The currency movements are exhibiting greater volatility than during the Asian financial crisis."
As the U.S. engages in a tariff war globally, it is expected to induce a rise in the currency value of counterpart nations to offset its trade deficit, which has led to a strengthening of the New Taiwan Dollar. In the past, Donald Trump, the U.S. president, advocated for a weaker dollar to enhance U.S. export competitiveness. Taiwanese export corporations are reportedly selling dollars, and funds seeking to purchase the New Taiwan Dollar are continuously flowing in.
The Taiwanese government has announced that its negotiation team held the first meeting with the U.S. on the 1st, but did not disclose specific details. However, the Taiwanese government denied that exchange rates were included in the discussion of this negotiation as the value of the New Taiwan Dollar soared. Despite this stance, Stephen Engle, Chief Economist for Japan and Emerging Markets at Moody's Analytics, explained, "It cannot be ruled out that exchange rates are being quietly discussed in broader trade negotiations."
There is a prevailing outlook that the profitability of Taiwan's export-driven semiconductor industry ecosystem will inevitably suffer. While TSMC is expected to see growth potential in key operational metrics such as shipment volume, utilization rates, and average selling prices during this quarter, it is anticipated that the impact of the strong New Taiwan Dollar will prevent it from sustaining gross profit margins. Reports suggest that TSMC stated its operating profit margin declines by approximately 0.4 percentage points for every 1% increase in the New Taiwan Dollar's value.
Taiwan Economic Daily reported, "TSMC may fail to withstand the effects of the strong New Taiwan Dollar and could see its gross profit margin drop again to below 30%. It is expected that a 6% increase in value will approximately impact the gross profit margin by about 3 percentage points."
TSMC has reportedly been making vigorous efforts to defend its profitability, requesting cost reduction measures from corporations involved in its manufacturing supply chain, including materials and supplies. Local media indicate that TSMC is urging the supply chain ecosystem to submit proposals for cost reductions to offset profitability impacts resulting from currency headwinds. TSMC has requested that relevant corporations reduce raw material prices, such as wafers, by at least 30% for the following year, and with added pressure from currency fluctuations, has demanded revised estimates by the end of this month.
An industry insider noted, "Given that most of TSMC's revenue comes from large U.S. tech firms, the damage from exchange rate fluctuations will be significant," adding, "In the short term, countermeasures may be implemented to enhance profitability through cost reductions."