TSMC Rises as Investors See Chip Giant's Strength in Downturn

Taiwan Semiconductor Manufacturing Co. Surged as much as 4.6% Friday After Investors Bet the Company Would Be Among the First to Emerge from an Industry Downturn in 2023. The Chipmaker is One of the most Valuable in the World, and Investors Believe it Will Be able to Weather the Storm Better Than its Competitors.

‍
At its earnings announcement a day earlier, TSMC executives addressed concerns about a prolonged chip crisis, forecasting small annual revenue growth and the beginnings of a recovery in the latter half of the year. Markets had been bracing for a far weaker outlook, but the company's forecast was more optimistic than expected.
TSMC, the exclusive supplier of Apple Inc.'s Silicon chips for iPhones and Macs, is better equipped than most of its peers to weather a slowdown. Executives reiterated the company's plans to ramp up next-generation 2-nanometer chips to meet demand for more powerful and energy-efficient silicon. The company began bulk production of advanced 3nm chips last month.

‍
TSMC is expected to be the first of the world's top-five chip foundries to resume sales growth, likely in late 2023. However, the semiconductor manufacturing industry is expected to see weakness in demand for smartphone and PC chips through the year. Steady migration to next-generation process nodes, such as N3 in 2023 and N2 in 2025, new specialty manufacturing capacity, and 3D-packaging technology, should ensure TSMC's long-term domination of the contract-chipmaking market. This could also help the company's long-term gross margin stay in the 53-60% range, far above peers.

‍
Charles Shum is a BI analyst who has extensive experience working with data and analytics. He has a deep understanding of how to use data to drive business decisions, and he is always looking for ways to improve the way businesses use data.

‍
As recession fears prompt consumers to curb spending, TSMC's contract chipmaking clients are slashing their budgets. At the same time, tightening US-China trade controls, rising interest rates, and inflation are all adding to the uncertain outlook.

‍
TSMC's net income rose by 78% in the quarter just ended, exceeding expectations. The company expects sales of $16.7-17.5 billion in the first quarter.
TSMC shares jumped on Wednesday after analysts said the company is nearing an inflection point in 2023. TSMC cut its spending forecast for the year ahead, suggesting tough times ahead, but analysts say the company is well-positioned for a rebound in 2023. "TSMC's near-term outlook is certainly challenging, but we see an inflection point in 2023 that should drive significant upside to the stock," Goldman Sachs analysts wrote in a note to clients.