(Bloomberg) — Taiwan Semiconductor Manufacturing Co. is forecasting worse-than-expected sales for the current quarter, reflecting a continued slump in demand for everything from smartphones to server chips.
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Apple Inc.’s main chipmaker warned that demand from the mobile and PC industries will remain “weak” for now, although the market is stabilizing and is expected to recover in the second half of the year. It is sticking to previous plans to spend up to $36 billion in 2023 to modernize and expand capacity.
The mixed outlook suggests that Taiwan’s largest company — like the rest of the industry — is grappling with uncertainty about electronics demand in 2023 and beyond as consumers and businesses tighten budgets to cope with rising inflation and a possible global recession.
TSMC expects revenue of $15.2 billion to $16 billion this quarter, a shade below the $16.1 billion average forecast. The company issued the outlook after reporting first-quarter net income that beat lowered expectations, suggesting it is keeping costs in check while capitalizing on its market leadership. It forecasts gross margins of 52% to 54%, which is generally in line with the median estimate of 52.5%.
US customers and competitors such as Nvidia Corp., Intel Corp. and Advanced Micro Devices Inc. slipped in premarket trading. At the same time, chip-making equipment makers such as ASML Holding NV edged higher after TSMC stuck to its investment plans despite reports that the Taiwanese company would cut spending.
“We are going through the bottom of the TSMC business cycle in the second quarter,” Chief Executive Officer CC Wei told analysts on a conference call following the earnings. But the PC and smartphone markets are “currently still soft”.
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A big question facing TSMC and its colleagues is the magnitude of the global tech slump and whether China’s economy will rebound strongly once Covid-Zero controls are lifted. The company said Thursday it expects sales to fall in the low to mid-single digits in 2023 — roughly in line with estimates.
TSMC reported net income of NT$206.9 billion (US$6.8 billion) for the March quarter, compared to analyst estimates of NT$194.2 billion on average. TSMC, maker of the most advanced chips for global electronics leaders from Apple to Nvidia, had previously reported disappointing sales for the three-month period.
TSMC’s market leadership likely helped boost margins. On Wednesday, industry peer ASML — the largest maker of equipment vital to advanced chip manufacturing — forecast better-than-expected earnings for the June quarter. But net bookings, a barometer of future growth, plunged 46% year over year. Lam Research Corp., another equipment supplier to TSMC, also forecast adjusted earnings per share that missed the average analyst estimate.
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In the long term, investors hope that TSMC will benefit from an increase in artificial intelligence development and performance demand from applications for the high-end computer chips and data centers required to train and host AI models.
A development boom since OpenAI’s ChatGPT demonstrated the technology’s potential is driving sales of high-end chips, which in turn is helping to reduce the vast inventories of chips customers have been holding since the Covid era. That inventory build was larger than expected in late 2022, executives said.
What Bloomberg Intelligence says
TSMC management’s decision to cut its 2023 revenue target by up to 5% suggests that global demand for smartphones and PC chips could be much weaker than expected, a situation that recent enthusiasm for AI related semiconductors can hardly cushion. The weakness in demand can potentially prolong the de-stocking process in the global supply chain for most of the year.
– Charles Shum, analyst
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However, the outlook remains clouded by geopolitical uncertainties, including global efforts to encroach on TSMC’s turf in making advanced chips and China’s growing military threats against Taiwan.
Warren Buffett said in a recent interview that he sold the majority of Berkshire Hathaway Inc.’s $4.1 billion stake in TSMC in part due to geopolitical concerns.
TSMC is under pressure to produce its advanced chips overseas and is building more capacity in the US and Japan. Global policymakers and customers are increasingly wary of their technological dependency on Taiwan, which Beijing says is part of China.
That’s driving federal funding: TSMC has applied for federal funding under the US Chips and Science Act — designed to lure advanced chip manufacturing back to America’s shores — and the Japanese government is helping cover half the cost of the $8 billion to pay for expansion there.
–Assisted by Cindy Wang, Gao Yuan, Betty Hou, Peter Elstrom, and Sabrina Mao.
(Updates with US and European stock action from fifth paragraph)
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