(Bloomberg) -- Taiwan Semiconductor Manufacturing Co. forecast worse-than-anticipated revenue for the current quarter, reflecting a persistent slump in demand for everything from smartphones to server chips.
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Apple Inc.’s most important chipmaker warned that demand from the mobile and PC industries would remain “soft” for now, though the market was stabilizing and likely to improve in the second half of the year. It’s sticking with earlier plans to spend as much as $36 billion upgrading and expanding capacity in 2023.
The mixed outlook suggests Taiwan’s largest company — much like the rest of the industry — is grappling with uncertainty about electronics demand in 2023 and beyond, as consumers and corporations tighten their budgets to deal with soaring inflation and a potential global recession.
TSMC expects sales of $15.2 billion to $16 billion this quarter, a shade below the $16.1 billion analysts projected on average. It gave that outlook after posting first-quarter net income that exceeded lowered expectations, suggesting it’s keeping a lid on costs while taking advantage of its market leadership. It’s projecting gross margins of 52% to 54%, generally in line with the 52.5% average estimate.
US customers and peers including Nvidia Corp., Intel Corp. and Advanced Micro Devices Inc. slid in pre-market trading. At the same time, makers of chipmaking equipment such as ASML Holding NV gained slightly after TSMC clung to its capex plans despite reports the Taiwanese firm would reduce spending.
“We are passing through the bottom of the cycle of TSMC’s business in the second quarter,” Chief Executive Officer C. C. Wei told analysts on a post-earnings conference call. But the PC and smartphone markets “continue to be soft at the present time.”
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One big question TSMC and its peers face is the extent of the global tech slump and whether China’s economy will bounce back strongly after dropping Covid Zero controls. The company said on Thursday it expects a low- to mid-single-digit revenue decline in 2023 — about in line with estimates.
TSMC posted net income of NT$206.9 billion ($6.8 billion) for the March quarter, compared with the NT$194.2 billion analysts projected on average. TSMC, maker of the most advanced chips for global electronics leaders from Apple to Nvidia, had previously reported disappointing revenue for the three-month period.
TSMC’s market leadership likely helped buoy its margins. On Wednesday, fellow industry bellwether ASML — the largest producer of equipment essential to advanced chipmaking — forecast better-than-anticipated June quarter revenue. But net bookings, a barometer for future growth, plunged 46% from a year earlier. Lam Research Corp., another equipment supplier to TSMC, also forecast adjusted earnings per share that missed the average analyst estimate.
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Over the longer term, investors are hopeful that TSMC will benefit as a surge in artificial intelligence development and applications power demand for the high-end computing chips and datacenters required for training and hosting AI models.
A boom in development since OpenAI’s ChatGPT demonstrated the technology’s potential is driving sales of high-end chips, which in turn is helping whittle down the enormous stocks of chips that customers have held since the Covid era. That buildup in inventory had been larger than expected coming out of late 2022, executives said.
What Bloomberg Intelligence Says
TSMC’s management’s decision to cut its 2023 sales target by up to a 5% decline suggests that global smartphone and PC chip demand might be much weaker than expected, a situation that the recent enthusiasm for AI-related semiconductors can hardly cushion. The demand weakness can potentially extend the global supply chain destocking process across the majority of the year.
- Charles Shum, analyst
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The outlook however remains clouded by geopolitical uncertainty, including global efforts to encroach upon TSMC’s turf in advanced chipmaking and China’s growing military threats against Taiwan.
Warren Buffett said in a recent interview that he divested the majority of Berkshire Hathaway Inc.’s $4.1 billion stake in TSMC partly due to geopolitical concerns.
TSMC is under pressure to produce its advanced chips abroad and is building more capacity in the US and Japan. Global policymakers and customers are increasingly wary of their technological reliance on Taiwan, which Beijing has claimed is part of China.
That’s driving government funding: TSMC has applied for federal funds under the US Chips and Science Act — intended to attract advanced chipmaking back to American shores — and the Japanese government is helping pay for half the cost of its $8 billion expansion there.
--With assistance from Cindy Wang, Gao Yuan, Betty Hou, Peter Elstrom and Sabrina Mao.
(Updates with US and European share action from the fifth paragraph)
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