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TSMC CFO on addressing global tech surge

Wendell Huang, finance leader of the £350bn semiconductor maker, explains in an interview how the Taiwan giant responded to an uptick in demand created by the pandemic

When the coronavirus pandemic spread rapidly in February, Wendell Huang, the recently appointed CFO of TSMC (Taiwan Semiconductor Manufacturing Company), one of the world’s largest companies, knew exactly what to do.

In his 21-year tenure at the biggest semiconductor producer he had experienced many challenges, but it was the 2008 global financial crisis (GFC) which provided the playbook for managing this year’s unique set of events.

Huang, who became global CFO of TSMC two years ago, says of the firm’s 2008 response, when he was group treasurer: “We made  sure we had sufficient liquidity. Part of our cash holdings were in fixed income, so we spent a tremendous amount of time reviewing our portfolio with fund managers, deciding which securities to keep.”

The result was a practice that TSMC has kept to this day, that of keeping sufficient financial security to weather any potential storms. “We maintain a ‘fortress balance sheet’ where you have sufficient liquidity during the downturn, so that you’re able to invest during downturns and come out stronger when the market turns up.

“With a strong balance sheet and sufficient liquidity, you are able to invest in the upturn to catch any opportunities. Going through the two crises, it reaffirmed our belief in this principle,” he says.

Having a plan to perform well through economic cycles, as well as adapt to sudden one-off events, is key to the business model in a sector such as semiconductors- a vital component for electronic goods such as smartphones, TVs and computers, says Huang.

At the moment Huang became group CFO in September 2019, TSMC was in the process of ratcheting up capacity to meet global demand fuelled by the 5G rollout for telecom networks and AI (artificial intelligence) technology.

His immediate concerns were ensuring the finance function delivered financial discipline for the group. “During the normal times as well as crises, we maintain tight focus on margins and funding levels because we are a capital intensive business.

“We need to build very expensive capacity to satisfy our customers’ demand. We need to lead in technology that requires R&D, so the finance function has to make sure the company can maintain its margins. We need to look at our components in cost and expenses and make sure that we maintain our profitability. We also need to have a look at our cash flow, to know we have strong funding for capital expenditure,” says Huang.

The combination of tight financial discipline and effective balance sheet management has ensured TSMC has delivered double digit growth for most years since it was launched in 1987 by Morris Chang who retired two years ago. Along the way it became the first Taiwanese company to list in the US, when it joined the New York Stock Exchange in 1997.

This formula has seen the group, grow to become the dominant player in a business that is critical to the global tech industry- resulting in its market cap passing £350bn by December 2020, making it one of the world’s 20 biggest listed companies.

Robust response

Despite having the right structure in place, there was still a huge amount of uncertainty when the coronavirus spread out from China, hitting other Asian countries before becoming a global pandemic.

TSMC had already started fundraising at the beginning of the year to meet rising tech demand. When coronavirus impacted, Huang and his team decided to continue tapping capital markets to ensure the group was well placed however the uncertainty around the pandemic would play out.

In early March TSMC’s share price fell sharply as investors pondered how things would play out. But the picture changed when it quickly became clear that global lockdowns to check the pace of the pandemic would fuel a massive increase in tech usage. “Working from home and schooling at home created a new set of demands for semiconductors,” says Huang.

In total, TSMC raised over $8bn to ensure liquidity during the period. “We were confident that our internal operating cash flow was very strong, but given the low interest rate environment and the future growth opportunity, we thought it was prudent to continue raising funds,” he says.

TSMC also benefited from the fact that Taiwan, where 90 percent of the group’s 50,000 global workforce are based, has seen limited impact from coronavirus so far, with less than 800 cases reported. “We were in a better position than many other countries,” says Huang.

Nevertheless, TSMC installed an internal committee, which met twice a week, focusing on government instructions and guidelines to ensure employee safety. “For a period of time we separated the teams, and some staff worked at home. But that only lasted a few weeks. We decided that because the situation had improved in Taiwan, we could go back to normal,” says Huang.

There are still strict rules in place for staff and visitors entering company premises. “We have to take our temperatures every day 20 minutes before entering, otherwise you don’t get to come into the office,” says Huang. “And we are not in close contact with anyone from overseas. So in that respect we still have really tight controls,” he says.

Taking charge

Huang’s promotion to the top finance role at TSMC took place in a 10-month transition period in which the previous CFO Lora Ho gradually passed responsibilities over to the then deputy CFO.

He says that although there were “tons of things to learn” to become the finance chief of one of the world’s biggest companies, the finance function had been involved in a process of continual development for many years.

“It was not a sudden change in terms of using different technologies, having different objectives or doing things differently. The whole finance organisation has continued to evolve to cope with the changing environment, during my last 20 some years with the company,” he says.

Huang says machine learning, for funding and cash flow forecasting including account receivable collection, has been a powerful tool for the finance function. RPA (robotic process automation), which has also been long present, “helps us save man hours,” he adds.

“Our people can spend more time on financial analysis, looking at the data and analysing what went wrong what went well and drawing up conclusions and recommendations,” says Huang. “But I think there are even more areas that we can use new technologies,” says Huang, who was a banker at several institutions before joining TSMC.

When it comes to ensuring the right data is captured for insights to drive decision-making, Huang says: “It takes some trial and error. You do analysis with a set of data. You think that’s relevant. You look at the projection results. And you ask yourself, can I improve this?

Despite the level of uncertainty about how the global economy will bounce back from the pandemic, and despite a vaccine rollout and vast stimulus programmes kicking in, Huang says he is confident about the mid-term. “It does appear to me, that there will be less unpredictability going forward, especially with the vaccines on their way.

“One of the things that may continue demand for semiconductors, that has been so strong this year is supply chain security concern. I think both due to the pandemic, as well as issues around geopolitical relationships, many people in the supply chain want to build more inventory.

“We believe the inventory level will probably remain higher than before, for a longer period of time, at least. So that’s the main factor built into our current forecast.

“We are always aware of the possibility of inventory correction. But at this moment, we just think that the inventory level will be higher than before,” he says.

When it comes to the broader question of whether the supergroup of tech companies will continue to lead, or whether a new set of disruptors will change the landscape he says: “This is a big question. But I’m not sure I can answer it. However, we have confidence to maintain our trinity of strengths- technology leadership, manufacturing excellence and customer trust,” he says.

One long term trend is the inevitable move to sustainability forced by climate change. TSMC is the first semiconductor company to join RE 100, an influential group of companies committed to renewable energy.  “By 2050, we will be using100 percent renewable energy,” says Huang.

In August TSMC concluded the biggest ever renewable energy corporate purchase agreement, a 20 year contract to take the full production of Danish firm Ørsted’s 920MW Greater Changhua 2b & 4 offshore wind farm. “Green manufacturing is one of our focuses and will continue to be so,” says Huang.

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