Chip giant TSMC plans to cut spending
TAIWAN Semiconductor Manufacturing Co. (TSMC) predicted sales below analysts’ estimates and said it will reduce spending as the chip industry braces for a potential recession and tighter United States trade controls.
First-quarter sales will be $16.7 billion to $17.5 billion, TSMC said Thursday. Analysts predicted $17.9 billion on average. The chip giant said capital expenditure is set to decrease to $32 billion to $36 billion this year from $36.3 billion in 2022.
The first quarter could mark TSMC’S first revenue decline in four years, underscoring the depth of the global slowdown in technology demand. First-half sales will fall by mid- to high single-digit percentage, TSMC said, predicting a recovery in the second half that 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 slump. The US has tightened China chip trade controls, while rising interest rates, soaring inflation and concerns of a potential global recession are causing consumers to curb spending.
The world’s biggest 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 Covidrelated chaos at a plant in Zhengzhou exposed vulnerabilities in the company’s supply chain.
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 percent over the past 10 months to the lowest in two years, according to data compiled by Bloomberg.
“The market is quite pessimistic about TSMC’S outlook,” Venson Tsai, an analyst at Cathay Securities and Futures, said ahead of the results. “It’s key to see when inventory will return to normal level, which will affect market sentiment. Another key thing to watch is its 2023 capex. If its capex grows at least 10% from last year, investors will see it as a positive signal.”
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.
net income climbed 78 percent to nt$295.9 billion ($9.7 billion) for the quarter through December, TSMC said. Analysts estimated nt$287.8 billion on average. Revenue advanced 43 percent to nt$625.5 billion as previously reported—the first miss in two years.
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 percent last quarter from 52.7 percent a year earlier, also helped by favorable foreign exchange rates and efforts to curb costs.