TSMC Cuts Expansion Plan to $36B as Outlook Sours
Taiwan Semiconductor Manufacturing Co. (TSMC) is cutting its 2022 capacity expansion budget to $36 billion from the original $40 billion announced in July, as outlook for demand from smartphone and other consumer electronics makers dims.
The world’s leading maker of advanced chips for Apple iPhones and other smartphones says demand for its leading-edge 7-nm chips has slumped, impacting the utilization rate of that node. The company offered no numbers on utilization—a key metric of profitability.
“While the ongoing semiconductor inventory correction will affect our first-half 2023 utilization rate, we expect our business to be supported by stronger demand for our differentiated, leading, and advanced specialty technologies” starting around the second half of 2023, TSMC CEO C.C. Wei said during the company’s Q3 earnings call on Oct. 13 with industry analysts.
Wei said 2023 will be a growth year for TSMC, while the overall semiconductor industry will shrink. He declined to offer details. Utilization of TSMC’s 7-nm and 6-nm nodes will drop through the first half of 2023 from the past three years, he added.
Slowdown comes on heels of solid growth
The slowdown reverses strong growth that started in 2020, when the Covid pandemic drove demand for expansion of datacenters and mobile electronic devices as part of the work-from-home trend. Semiconductor shortages have widely impacted systems makers including automobile and defense companies.
Half of TSMC’s cut in capex this year is a result of shortages of chipmaking tools from suppliers like ASML, which ironically have been unable to buy enough chips to make their equipment.
TSMC, which has led the world with its latest 5-nm chips, plans to produce its first 3-nm chips within months. Samsung, TSMC’s second-ranked rival in the chip foundry business, became the first to announce this year production of 3-nm chips. Demand for 3-nm chips will contribute low single-digit percentages to company revenue by the second half of 2023, TSMC said.
Some analysts expressed surprise at the drop in 7-nm utilization.
“We just get too used to expecting TSMC to always deliver much better results,” Bruce Lu, an analyst at Goldman Sachs, said during the call.
TSMC’s customer inventories are at a 25-year high, Mehdi Hosseini, an analyst at Susquehanna, said. The inventory crash will sustain throughout the first half of 2023, he added.
The main impact of the inventory correction on TSMC will come during the first half of 2023, CEO Wei said.
Geopolitics of chips
Most of the analysts on the call had questions regarding geopolitical issues between the U.S. and China that are forcing a shift in the world’s semiconductor supply chains.
TSMC said it is in preliminary evaluation of a potential chip foundry in Europe. Following the U.S. announcement of new restrictions last week on exports of chips and related technology to China, TSMC confirmed that it has permission to make 16-nm chips at the company facility in Nanjing, China.
Despite the higher cost of chip production at its new sites in the U.S. and Japan, the company said it will maintain gross margins of 53% and higher over the long term. TSMC’s gross profit in the third quarter of 2022 exceeded 60%.
