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Executives at the world’s most important chipmaker made a valiant attempt at calming global nerves Thursday over the outlook for the semiconductor sector. But equipment suppliers and investors are unlikely to find much to cheer from Taiwan Semiconductor Manufacturing Co.’s third-quarter earnings.
Net income at TSMC beat estimates, but that’s because the company has become a master at managing expectations. A 3% drop in the Taiwan dollar was a major boost to the bottom line. The revenue outlook for the current quarter appears pretty solid, and the company reiterated its belief that growth for the year will be at a healthy mid-30% level. TSMC also repeated its long-term gross margin target of 53%.
But the rest of the world will find little solace.
Its big bombshell came in announcing a 10% cut in spending plans for this year. As recently as July, TSMC was predicting it would shell out a record $40 billion, compared to an earlier forecast of as much as $44 billion. Now it’s looking at $36 billion, which means that it’s wiped out $8 billion of orders in just six months.
There’s no way executives at major equipment suppliers ASML Holding NV, Lam Research Corp. or KLA Corp. can spin this positively. In fact, Applied Materials Inc. flagged these troubles just 12 hours earlier when it cut its own fourth-quarter revenue guidance.
While much recent attention has been on the Biden administration’s tightened restrictions on US chip technology exports to China, TSMC described the impact as “limited and manageable.†The company confirmed that it received a one-year authorization from the US to continue ordering equipment for 28-nanometer and 16-nanometer manufacturing at its Nanjing factory, a small but significant reprieve.
In truth, the troubles faced by TSMC and the global chip sector go beyond American attempts to rein in China.
Chief Executive Officer C.C. Wei was blunt. The market is softening because of weaker demand in smartphones and personal computers, while some customers delayed the introduction of new products, he said without naming the clients. Even TSMC will suffer, with factory utilization to remain weak for the next six to nine months. The company also flagged the possibility of lower spending next year.
One bright spot might be the first dip in inventory since before the Covid pandemic, but that’s also a sign that customers like Nvidia Corp., Apple Inc. and Advanced Micro Devices Inc. lack the confidence to keep high stockpiles in anticipation of future orders.
With global chipmakers including Samsung Electronics Co., Intel Corp. and Micron Technology Inc. all signaling pain in the sector, TSMC had stood out as the last beacon of hope. Its position as the world’s most-advanced semiconductor company and a monopoly over the high-end components used in smartphones, data centers and high-performance computers seemed to make it immune to the troubles of lesser firms.
But even TSMC is no match for the Federal Reserve’s monetary tightening, Moscow’s incessant war on Ukraine, and continued supply-chain friction that has stalled equipment delivery.
As executives went through the company’s numbers, explained its outlook and technology roadmap, and answered questions, the messaging was one of calm confidence that everything will be all right — sometime next year, perhaps. Everyone else will probably see it differently. It’s hard to find comfort when even the king of the technology jungle takes a tumble.
—Bloomberg