TSMC cuts investment in 2023 after record fourth quarter as chip demand weakens

• Q4 profit of T$295.9 billion vs. T$289.44 billion, analysts say
• Fourth-quarter revenue up 26.7% year-on-year to $19.93 billion
• Sees 2023 investments at $32-36 billion versus $36.3 billion a year earlier
• The company plans to increase its production abroad

TAIPEI, Jan 12 (Reuters) – Taiwanese chipmaker TSMC (2330.TW) warned on Thursday that first-quarter revenue would fall by up to 5% and reduce annual investments as major Apple Inc. (AAPL.O) supplier expects lower demand due to slowing global economy.

The bearish outlook follows a 78% jump in fourth-quarter profits, beating forecasts, underscoring the depth of a sharp slowdown in a global tech sector struggling with worsening consumer demand driven by higher interest rates. high inflation for decades, rising interest rates and an economic slowdown.

Still, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s most valuable chipmaker, expects growth to return in the second half of this year.

“We expect the semiconductor cycle to bottom out in the first half and see a recovery in the second half of 2023,” CEO CC Wei said, adding the rebound would be driven by new product launches. such as goods enabled by artificial intelligence.

The world’s largest contract chipmaker said its capital expenditure in 2023 would decline to $32-36 billion from $36.3 billion in 2022.

Hopes of a recovery in the second half and reduced investment to manage supply drove TSMC’s U.S. shares up 7.5%.

First half revenue is expected to decline mid to high single digit. First-quarter revenue is expected to be between $16.7 billion and $17.5 billion, compared to $17.57 billion a year earlier.

INVESTMENT

TSMC’s dominance in making some of the most advanced chips for high-end customers like Apple has shielded it from the downturn. But the company is likely to fall victim to the worsening downturn, with the current quarter set to mark its first drop in sales in four years.

The fourth quarter “was held back by weak end-market demand and customer inventory adjustments,” Chief Financial Officer Wendell Huang said in a briefing, adding that these conditions will continue into the first quarter.

“Given the near-term uncertainties, we continue to manage our business cautiously and tighten our capital expenditures as needed,” Huang said. Our disciplined investments and capacity planning remain based on the long-term market demand profile.

TSMC, Asia’s most valuable listed company, backed by billionaire Warren Buffett’s investment conglomerate Berkshire Hathaway Inc. (BRKA.N)has repeatedly said that companies will continue to benefit from a “mega-trend” in demand for high-performance computer chips for 5G networks and data centers, as well as increased use of chips in gadgets and the vehicles.

He reiterated on Thursday that the slowdown in demand was a cyclical problem and that 2023 overall would be a mild year of growth for the company.

TSMC said it plans to ramp up production outside of Taiwan as global attention focuses on its investment plan and various governments offer incentives to boost chip manufacturing in their countries.

It said at least a fifth of its 28-nanometer (nm) and more advanced node capacity, which accounted for most of the company’s revenue in 2022, could be overseas “within five years. or more”.

Late last year, TSMC began construction of a second chip factory in Arizona, which will begin production in 2026, using advanced 3nm technology. Its total investment in the American project amounts to 40 billion dollars.

CEO Wei said TSMC plans to build a second plant in Japan and in Europe it is also evaluating the possibility of building a specialized plant focused on the automotive industry without providing further details.

He added that the company expects the shortage of autochips to be “easing soon”.

For October-December, TSMC posted a record net profit of T$295.9 billion ($9.72 billion) from T$166.2 billion a year earlier. This compares to the $289.44 billion average of 21 analyst estimates compiled by Refinitiv.

Revenue rose 26.7% to $19.93 billion, compared to TSMC’s earlier estimated range of $19.9 billion to $20.7 billion.

TSMC’s share price fell 27.1% in 2022, but has risen 8.5% so far this year, giving the company a market value of $412.78 billion. . The stock rose 0.4% on Thursday against a 0.1% decline for the benchmark. (.TWII).

($1 = 30.4420 Taiwan dollars)

Reporting by Yimou Lee and Sarah Wu; Written by Ben Blanchard; Editing by Christopher Cushing and Conor Humphries

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