TSMC to Reduce Expenditures to Balance Declining Short-Term Revenues

Taiwan Semiconductor Manufacturing Co. is preparing for weaker-than-expected sales by reducing spending, deepening concerns that the technology industry's slump is yet to bottom.
This quarter could mark the first revenue drop for the chip giant in four years. However, executives are forecasting slight growth for the full year, due to an expected recovery in demand for server chips.
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The company is banking on its technology and scale advantages to help it weather the worst of the slowdown. The US has tightened China chip trade controls, while rising interest rates, soaring inflation and concerns of a potential global recession have caused consumers to curb spending on smartphones and computers.
"We're seeing softer demand than we anticipated three months ago," said Chief Executive Officer C.C. Wei on a conference call. He noted that TSMC and its customers will be "more cautious" in their expectations for demand and supply over the coming months.
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The world's largest contract manufacturer of chips, which is the exclusive supplier of Apple Inc.'s Silicon chips for iPhones and Macs, may also have been affected by problems at the US tech giant's assembly operations in China. Apple was forced to trim output estimates after Covid-related chaos at a plant in Zhengzhou exposed vulnerabilities in the company's supply chain.
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According to Bloomberg Intelligence, the company's analysts believe that the stock has potential to grow. They say that the company is well-positioned to capitalize on the growing demand for streaming content.
TSMC is focused on expanding capacity overseas, especially in the US and Japan, in order to meet customers’ diversification requests and compete with Samsung and Intel. However, rapidly rising depreciation and operation costs, coupled with increasing uncertainty for smartphone demand recovery, are capping its gross margin.
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TSMC has forecast first-quarter sales of $16.7-17.5 billion, below analysts’ average estimate of $17.9 billion. The company has said that sales in the first half of the year will fall by a mid- to high single-digit percentage, but that it expects a recovery in the second half that will lead to slight growth for the whole of 2023.
Jeff Pu, an analyst at Haitong International Securities, said that TSMC's guidance for the first half is in line with analyst expectations, while its forecast for the full year is better than feared. He said that growth in the second half will be supported by demand from customers such as Advanced Micro Devices Inc., Nvidia Corp., and Apple.
TSMC has announced that its capital expenditure will decrease to $32 billion to $36 billion this year, down from $36.3 billion in 2022. This is in line with analyst predictions of a decline to $34.9 billion, after TSMC slashed its 2022 plans by around 10%.
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TSMC, the most valuable company in Taiwan, saw its shares fall 27% last year. However, the company's shares have since rebounded and are up 8% this year. TSMC attributed its decline in share value to the global pandemic. ASML Holding NV, the world's largest chip-gear maker and a major supplier to TSMC, also saw its shares rise 1% in Amsterdam trading.

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Some of the biggest Wall Street banks have turned cautious on TSMC. Last week, Goldman Sachs Group Inc. and UBS Group AG said they expect its sales to be little changed in 2023, with the latter cutting its price target on the stock. Analysts have cut their average target by 39% over the past 10 months, according to data compiled by Bloomberg. This is the lowest average target in two years.

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The company and its customers still expect the long-term trend in electronics demand to keep going up. Last month, TSMC kicked off mass production of next generation chips and increased its investment in the US state of Arizona to $40 billion. This increase in production and investment indicates that the company is confident in the continued demand for electronics.
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Biden and Cook team up to celebrate TSMC's $40 billion investment in the US chip industry. This move is a big win for American workers and the economy, and it's a testament to the strength of the US chip industry.
TSMC's net income rose 78% to NT$295.9 billion ($9.7 billion) for the quarter ended December 31, the company said. This was higher than analysts' average estimate of NT$287.8 billion. Revenue for the quarter was up 43% to NT$625.5 billion, but this was the first time in two years that TSMC missed its revenue target.
TSMC's technology leadership gives it an advantage in pricing even as the broader industry languishes. Its gross margin - a measure of profitability - expanded to a record 62.2% last quarter from 52.7% a year earlier, also helped by favorable foreign exchange rates and efforts to curb costs. The company warned, however, that rising prices and its plans to ramp up production overseas could squeeze the metric.

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Global policymakers are concerned that their access to leading-edge chips depends heavily on Taiwan, an island that Beijing has threatened to invade. Key clients including Apple have called on TSMC to diversify its advanced chipmaking. The company is considering building a second plant in Japan, as well as an automotive chips factory in Europe, executives said.
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The head of Taiwan Semiconductor Manufacturing Co. (TSMC) said he expects the global chip shortage to ease by the end of the year, providing relief to the auto industry which has been hit hard by the shortage."We expect the situation to improve in the fourth quarter," TSMC Chief Executive C.C. Wei said in a conference call with analysts, according to Reuters.Wei's comments come as the auto industry has been struggling with a shortage of semiconductors, which has forced some manufacturers to halt production. The chip shortage has been caused by a number of factors, including the pandemic, which has disrupted the global supply chain.
‍"The semiconductor shortage is a global issue and we are doing everything we can to increase production," Wei said.TSMC is the world's largest contract chipmaker and supplies chips to a number of major tech companies, including Apple, Qualcomm and Huawei.