TSMC Warns of Possible Revenue Drop, Plans to Cut Spending

Taiwan Semiconductor Manufacturing Co. (TSMC) has announced that its revenue could drop by up to around 5% in the current quarter, and that it may cut this year's capital expenditures compared to last year. This is due to weak global demand.
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TSMC is one of the world's largest semiconductor foundries, and it plays a vital role in the production of many of today's most popular electronic devices. The company's stock has been on a tear lately, rising nearly 8% in the past month.
TSMC, which reported record full-year revenue in 2022, said Thursday that it expects to post between $16.7 billion and $17.5 billion in revenue in the January-to-March quarter, compared with $17.57 billion from a year earlier. This would mark the first time TSMC's quarterly revenue has declined year-over-year since the first quarter of 2019, according to data from S&P Global Market Intelligence.
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The world's largest contract chip manufacturer has set this year's capital expenditure budget at between $32 billion and $36 billion, compared to last year's record $36.3 billion. The company said that 70% of this year's budget would go towards building up capacity for the most advanced chips.
The possible drop and cut in production at TSMC, one of the world's leading suppliers of chips, is a sign that the semiconductor industry is facing headwinds after a period of strong expansion. This is a concern for major chip developers like Apple Inc., who rely on TSMC for their supplies.
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The pandemic has led to an increased demand for devices such as smartphones and data centers as many people work from home. This has caused a shortage of semiconductors, which has been a problem for chip makers in recent quarters. They have been struggling with weakening demand and higher costs from inflation.
C.C. Wei, the CEO of a semiconductor company, said that he expects a sharp drop in inventory in the semiconductor supply chain through the first half of this year. He added that this would likely be followed by a recovery in the second half of the year.
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Mr. Wei said that he expects the global semiconductor industry to decline by 4% in 2023, excluding memory chips. He said that TSMC is expected to grow slightly during this time.
Many semiconductor manufacturers have slowed investment or cut employees. Memory chip maker Micron Technology Inc. said last month that it would be laying off around 10% of its workforce.
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TSMC is expanding its operations globally, with new semiconductor-fabrication plants in Arizona and Japan. Its executives have said that it will steadily increase production capacity outside of Taiwan, where most of its chips are currently produced. This is in response to concerns from its clients about production concentration in the self-ruled island that China claims as its own. With tensions between the U.S. and China growing over Taiwan, TSMC's expansion is a way to address these concerns.
TSMC is considering building a second factory in Japan, according to Mr. Wei. This would confirm an earlier Wall Street Journal report. He also said that TSMC is studying the feasibility of building new facilities in Europe, specifically for auto makers.
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Last month, TSMC announced that it would be increasing its investment in Arizona to $40 billion. The company plans to use the funds to build a 3-nanometer chip facility, which would be the most advanced of its kind in the industry. However, TSMC's Chief Financial Officer Wendell Huang noted that building such a facility in the United States would be four to five times more expensive than building a similar facility in Taiwan.
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TSMC reported record-breaking net income and revenue for the fourth quarter of 2020. Net income rose by 78% from the same period a year earlier to 295.90 billion New Taiwan dollars, while fourth-quarter revenue increased by 43% to NT$625.53 billion. For the full year, the company posted NT$2.264 trillion in revenue and NT$1.017 trillion in net profit, both of which were the highest on record.