(Bloomberg) — Taiwan Semiconductor Manufacturing Co. predicted sales below analysts’ estimates and said it would reduce spending because the chip industry braces for a possible recession and tighter US trade controls.
Most Read from Bloomberg
First-quarter sales will probably 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 about to diminish to $32 billion to $36 billion this yr from $36.3 billion in 2022.
The primary quarter could mark TSMC’s first revenue decline in 4 years, underscoring the depth of the worldwide slowdown in technology demand. First-half sales will fall by mid- to high single-digit percentage, TSMC said, predicting a recovery within the second half that may mean slight growth for the entire of 2023.
The corporate is betting on its technology and scale benefits to weather the worst of the slump. The US has tightened China chip trade controls, while rising rates of interest, soaring inflation and concerns of a possible 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 additionally have been affected by problems on 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 corporate’s supply chain.
What Bloomberg Intelligence Says
Overseas capability expansion will probably be front and center for now, especially within the US and Japan, as TSMC pushes to satisfy customers’ diversification requests and rises to the challenge of growing competition from Samsung and Intel. Rapidly rising depreciation and operation costs, coupled with increasing uncertainty for smartphone demand recovery, are capping its gross margin.
– Charles Shum, analyst
Click here for research.
A number 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 modified in 2023, with the latter cutting its price goal on the stock. Analysts have cut their average goal by 39% over the past 10 months to the bottom in two years, in accordance with data compiled by Bloomberg.
“The market is sort of pessimistic about TSMC’s outlook,” Venson Tsai, an analyst at Cathay Securities and Futures, said ahead of the outcomes. “It’s key to see when inventory will return to normal level, which is able to affect market sentiment. One other key thing to observe is its 2023 capex. If its capex grows a minimum of 10% from last yr, investors will see it as a positive signal.”
The corporate and its customers still expect the long-term trend in electronics demand to maintain going up. Last month, TSMC kicked off mass production of next generation chips and increased its investment within the US state of Arizona to $40 billion.
Biden Joins Tim Cook to Hail TSMC’s $40 Billion US Chip Enterprise
Net income climbed 78% 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% to NT$625.5 billion as previously reported — the primary miss in two years.
TSMC’s technology leadership gives it a bonus in pricing whilst the broader industry languishes. Its gross margin — a measure of profitability — expanded to a record 62.2% last quarter from 52.7% a yr earlier, also helped by favorable foreign exchange rates and efforts to curb costs.
Shares of Hsinchu-based TSMC, Taiwan’s Most worthy company, fell 27% last yr — after doubling in the course of the pandemic — and are up about 8% this yr.
TSMC is under pressure to diversify the geographic distribution of its advanced chipmaking and is working with governments just like the US and Japan on developing a more international footprint. Global policymakers and customers are increasingly leery of their technological reliance on Taiwan, an island Beijing has threatened to invade, and have pushed TSMC to shift some production abroad.
Most Read from Bloomberg Businessweek
©2023 Bloomberg L.P.