TSMC Faces 15% Revenue Hit Due To Order Slowdown – Report

Ramish Zafar
A 300mm TSMC chip wafer on display at the 2020 World Semiconductor Conference in Nanjing, China. Image: Getty Images via Los Angeles Times

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The Taiwan Semiconductor Manufacturing Company (TSMC) is in for a tough couple of quarters if fresh reports from the Taiwan press end up being true. TSMC is slated to hold a rare ceremony tomorrow in Taiwan, when it will celebrate its new facility in Nan-ke, Taiwan. The company rarely holds such events, but this time around, industry sources believe that the event is in response to criticism in Taiwan about a new plant that TSMC has opened in the U.S. Additionally, TSMC's primary rival in the contract semiconductor manufacturing sphere, Samsung Foundry, jumped the gun earlier this year when it announced 3-nanometer production in Korea after struggling with quality problems with its earlier manufacturing technologies.

TSMC To Increase Wafer Prices By 6% In 2022 In Order To Avoid Revenue Hit From Order Cutback & Amidst Rising Inflation

2022 has been a hard year for the semiconductor industry, as global macroeconomic uncertainty and rising inflation ended up disrupting consumer purchasing powers right when global economies recovered from two years of the coronavirus pandemic. While the pandemic was a boon for the sector as demand for electronics rose due to lockdowns, 2022 came as a surprise as firms such as AMD, Intel and NVIDIA were unable to forecast the extent of their order drops this year

Now, sources quoted by the Taiwanese publication DigiTimes believe that TSMC can end up seeing it revenue drop by a painful 15% sequentially in the first quarter of next year. A slowdown for the first quarter of 2023 is not new news, as TSMC's chief executive officer Dr. C.C. Wei was quite candid during the firm's third quarter earnings conference. During the event, he outlined that an order slowdown will take place in Q1, and that his company has reduced its capital expenditures according.

Dr. Wei had stated that:

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

TSMC's shares have dropped by 42% this year after recovering some of their losses over the past few weeks.

DigiTimes also shares details about TSMC's utilization rate, and the results aren't encouraging. In the chip industry, utilization refers to the percentage of machines operating and manufacturing the chips. According to the publication, the 7 nanometer and the 6 nanometer manufacturing technologies can see their utilization drop by a painful 50% next year. These are mature processes that are used by firms such as AMD for their products.

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

However, due to inflation, the orders on which these inventory stockpiles had been built did not materialize, and as a result, it will take a while before the situation stabilizes and companies start building their stocks again. Estimates from the industry suggest that the rebuilding can take place during the second half of next year, but will depend mostly on the wider macroeconomic picture as well.

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