(Bloomberg) – Taiwan Semiconductor Manufacturing Co predicts sales below analyst estimates and says it will reduce spending as chip industry prepares for a potential recession and tighter US trade controls.
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First-quarter revenue will be $16.7 billion to $17.5 billion, TSMC said Thursday. Analysts are predicting $17.9 billion on average. The chip giant said capital spending will fall from $36.3 billion in 2022 to $32 billion to $36 billion this year.
The first quarter could mark TSMC’s first revenue decline in four years, underscoring the magnitude of the global slowdown in technology demand. TSMC said that sales in the first half of the year will decline by a moderate to high percentage, while predicting a recovery in the second half will mean slight growth for the whole of 2023.
The company is betting on its technology and scale advantages to weather the worst of the recession. The US has tightened its controls on the Chinese chip trade, while rising interest rates, soaring inflation and fears of a global recession are keeping consumers on edge.
The world’s largest contract chipmaker, Apple Inc.’s exclusive supplier of Silicon chips for iPhones and Macs, may also have been affected by problems at the tech giant’s assembly operations America in China. Apple was forced to cut production estimates after Covid-related chaos at a factory in Zhengzhou exposed holes in the company’s supply chain.
What Bloomberg Intelligence Says
For now, overseas capacity expansion will be a top priority, especially in the US and Japan, as TSMC strives to meet customers’ diversification requirements and face competitive challenges. increasingly from Samsung and Intel. Rapidly increasing depreciation and operating costs, coupled with growing uncertainty over the need to recover smartphone demand, are limiting the company’s gross margin.
– Charles Shum, analyst
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Some of the biggest Wall Street banks have been wary of TSMC. Last week, Goldman Sachs Group Inc. and UBS Group AG said they expect their sales to be flat in 2023, with the latter cutting their price target on the stock. Analysts have cut their average target of 39% over the past 10 months to a two-year low, according to data compiled by Bloomberg.
“The market is pretty pessimistic about TSMC’s outlook,” Venson Tsai, an analyst at Cathay Securities and Futures, said ahead of the results. “It is important to know when inventories will return to normal levels, which will affect market sentiment. Another important thing to watch is its 2023 capital investment. If its invested capital increases by at least 10% year over year, investors will take that as a positive sign.”
The company and its customers still expect the long-term trend in electronics demand to continue to increase. Last month, TSMC began mass production of next-generation chips and increased its investment in the US state of Arizona to $40 billion.
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Net income increased 78 percent to NT$295.9 billion ($9.7 billion) in the quarter to December, TSMC said. Analysts estimate an average of NT$287.8 billion. Revenue rose 43% to NT$625.5 billion as previously reported — the first miss in two years.
TSMC’s technological leadership gives it a price advantage even as the industry as a whole is weakening. Its gross margin – a measure of profitability – rose to a record 62.2% last quarter from 52.7% a year earlier, also thanks to favorable exchange rates and efforts cost restraint.
Shares of Hsinchu-based TSMC, Taiwan’s most valuable company, fell 27% last year — after doubling during the pandemic — and are up about 8% this year.
TSMC is under pressure to diversify the geographic distribution of its advanced chip manufacturing operations and is working with governments like the United States and Japan to develop a more international footprint. Policymakers and global customers are increasingly worried about their technology dependence on Taiwan, an island Beijing has threatened to invade, and which has prompted TSMC to shift some of its operations. production abroad.
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