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Weakening Chip Demand Prompts TSMC To Reduce 2023 Capex Even After A Record Q4

Weakening Chip Demand Prompts TSMC To Reduce 2023 Capex Even After A Record Q4
Taiwanese chipmaker TSMC warned on Thursday that first-quarter revenue could fall by up to 5% and that annual investment would be reduced as the major Apple Inc supplier anticipates softer demand due to a slowing global economy.
The bearish outlook comes on the heels of a 78% increase in fourth-quarter profit, highlighting the depth of a sharp slowdown in a global technology sector grappling with worsening consumer demand caused by decades-high inflation rates, rising interest rates, and an economic downturn.
Nonetheless, Taiwan Semiconductor Manufacturing Co Ltd, the world's most valuable chipmaker, predicts that growth will resume in the second half of this year.
"We forecast the semiconductor cycle to bottom sometime in first half and see a recovery in second half 2023," CEO C.C. Wei said, adding the rebound would be boosted by new product launches such as artificial intelligence-enabled goods.
The world's largest contract chipmaker stated that its capital expenditure in 2023 will be $32-36 billion, down from $36.3 billion in 2022.
Revenue is expected to fall by a mid- to high-single-digit percentage in the first half. Revenue for the first quarter is expected to be in the $16.7 billion to $17.5 billion range, down from $17.57 billion a year ago.
TSMC's dominance in producing some of the most advanced chips for high-end customers like Apple has protected it from a downturn. However, the company is likely to succumb to the deepening slowdown, with the current quarter likely to mark the company's first sales decline in four years.
The fourth quarter was "dampened by end-market demand softness and customers' inventory adjustment," Chief Financial Officer Wendell Huang said at a press conference, adding that such conditions would continue into the first quarter.
"Given the near-term uncertainties, we continue to manage our business prudently and tighten up our capital spending where appropriate," Huang said. "Our disciplined capex and capacity planning remain based on the long-term market demand profile."
TSMC, Asia's most valuable listed company, which is backed by billionaire Warren Buffett's investment conglomerate Berkshire Hathaway Inc, has repeatedly stated that it will benefit from a "mega-trend" of demand for high-performance computing chips for 5G networks and data centers, as well as increased use of chips in gadgets and vehicles.
It reiterated on Thursday that slower demand was a cyclical issue and that 2023 would be a year of slight growth for the company.
TSMC announced plans to expand production outside of Taiwan as global attention turns to its investment plan and various governments offer incentives to boost chip manufacturing in their respective countries.
It stated that "within five years or more," at least one-fifth of its 28 nanometre (nm) and more advanced node capacity, which accounted for the majority of the company's revenue in 2022, could be deployed overseas.
Late last year, TSMC began construction on a second chip factory in Arizona, which will begin production in 2026 using advanced 3 nm technology. Its total investment in the project in the United States is $40 billion.
CEO Wei stated that TSMC was considering building a second fab in Japan, and that it was also considering building a speciality fab focused on the auto industry in Europe, without providing further details.
He added the company expected the auto chip shortage to be "relaxed quickly".
TSMC reported a record net profit of T$295.9 billion ($9.72 billion) from October to December, up from T$166.2 billion the previous year. In comparison, the average of 21 analyst estimates compiled by Refinitiv was T$289.44 billion.
Revenue increased 26.7% to $19.93 billion, exceeding TSMC's previous forecast range of $19.9 billion to $20.7 billion.
The share price of TSMC fell 27.1% in 2022, but is up 8.5% this year, giving the company a market value of $412.78 billion. The stock gained 0.4% on Thursday, while the benchmark index fell 0.1%.

Christopher J. Mitchell

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