TSMC is facing a 15% revenue hit from slowing demand

Taiwan Semiconductor Manufacturing Company (TSMC) is having a tough couple of quarters if new reports from the Taiwanese press are correct. TSMC is scheduled to hold a rare party tomorrow in Taiwan, where it will celebrate its new facility in Nan-ke Taiwan. The company rarely holds such events, but this time, industry sources believe the event came in response to criticism in Taiwan over a new factory TSMC opened in the US. In addition, TSMC’s main competitor in the nodal semiconductor business, Samsung Foundry, jumped in. Venice earlier this year when it announced 3nm production in Korea after suffering quality problems with previous manufacturing techniques.

TSMC raises biscuit prices by 6% by 2022 to avoid hitting revenue from cutbacks in orders and amid rising inflation

2022 was a difficult year for the semiconductor industry, as global macroeconomic uncertainty and emerging inflation disrupted consumers’ purchasing power right when global economies were recovering from two years of the coronavirus pandemic. While the pandemic has been a boon to the sector as demand for electronics soared due to the lockdown, 2022 came as a surprise as companies like AMD, Intel and NVIDIA could not predict how much their orders would drop this year.

Now, sources cited by Taiwanese magazine DigiTimes believe that TSMC could eventually see its revenue drop by a painful 15 percent sequentially in the first quarter of next year. A slowdown in the first quarter of 2023 is nothing new, as TSMC CEO Dr. C. C. Wei was completely candid during the company’s third-quarter earrings conference. During the event, he explained that a slowdown in demand would occur in the first quarter, and that his company had cut its capital expenditures accordingly.

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Dr. Wei stated that:

And for an inventory correction in 2023, all we want to say is like this. We probably expect 2023, the semiconductor industry is likely to decline. But TSMC is also not immune, but we believe that our technology position, strong HPC portfolio and long-term strategic relationship with customers will enable our business to be more resilient than the semiconductor industry in general. And that’s why we say in 2023, it’s still a growth year for TSMC and it’s likely that the industry in general will decline.

TSMC shares are down 42% this year after clawing back some of their losses over the past few weeks.

DigiTimes also shared details about TSMC’s usage rate, and the results are not encouraging. In the chip industry, usage refers to the percentage of machines that power and manufacture the chips. According to the publication, 7nm and 6nm manufacturing technologies could see their usage drop by 50% next year. These are mature processes that companies like AMD use for their products.

In addition, while TSMC’s 5nm process managed to escape relatively unscathed, next year it will also be affected. In order to manage order drops, DigiTimes believes TSMC is working with its customers to allow for long-term commitments and contract renewals. For now, inventory at chip companies is high, as companies have built it up in response to shortages during the pandemic.

However, due to inflation, the orders on which the inventory build was not materialised, and as a result, it will take some time before the situation stabilizes and the company starts building its inventory again. Estimates from industry suggest that a rebuild could take place over the second half of next year, but it will depend mostly on the broader macroeconomic picture as well.

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