TSMC Might Face Revenue Shock As AMD’s PC Shipments Fall Says Analyst

Ramish Zafar

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

After chip designer Advanced Micro Devices, Inc (AMD) announced yesterday that its third fiscal quarter of 2022 revenue would drop over the guidance that it had provided in the prior quarter, an analyst in Taiwan believes that the announcement will make forecasting the Taiwan Semiconductor Manufacturing Company's (TSMC) revenues tricky. TSMC is the world's largest contract chip manufacturer, and its partnership with AMD has proven key in the latter's ability to regularly deliver technologically advanced products to the market. TSMC's importance in the global semiconductor ecosystem has grown over the past couple of years, especially as AMD's larger rival Intel Corporation's rate of innovation slowed down.

Several Of TSMC's High Performance Computing (HPC) Customers Are Doubtful of Market Demand For Coming Months Says Analyst

AMD's preliminary earnings report for the third fiscal quarter focused on a slowdown in the consumer section of its products. Prior to the release, the firm had expected to bring in $6.7 billion in revenues, but owning primarily due to a drop in desktop and notebook CPU sales, the revenue will drop by $1.1 billion from the guidance to now sit at $5.6 billion.

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AMD sources its products from TSMC., and the revenue shortfall raised questions about the Taiwanese company's ability to meet its revenue growth expectations just as it was due to report its revenue for September.

These results, shared earlier now show that in September TSMC had raked in NT$208 million in revenue. This marked a 36% annual growth, but at the same time, it also showed that month over month the revenue had dropped by 5%. The growth was helped by a stronger U.S. dollar which benefits non-U.S. exporters such as TSMC who see more units of local currency in revenue. Last year, the September revenue marked a 19% annual growth along with an 11% sequential growth.

The Taiwan Semiconductor Manufacturing Company's (TSMC) headquarters in Hsinchu, Taiwan. Image: Bloomberg

With both AMD and TSMC's latest financial figures out in the open, analyst Lu Xingzhi believes that TSMC's orders and revenue for the next year will become unpredictable as the semiconductor industry deals with supply chain problems and economic slowdown. According to a report, Xingzhi outlines that the high performance computing (HPC) industry is still far away from having certainty about customer demand, and major players, which are also TSMC's customers, are unclear of the demand for their products for the current quarter.

This injects fresh uncertainty into AMD's fortunes as well, since the preliminary earnings results had shown that while personal computing revenues dropped, its Data Center segment remained a bulwark and posted a strong 45% annual growth. However, sequential growth was much lower at 8%, which indicates that perhaps the Data Center segment which has proven itself to be one of the company's strongest segments this year might also be slowing down as higher inflation limits companies' ability to upgrade their hardware.

The HPC uncertainty also raises questions about TSMC's 2023 revenues believes the analyst, and it is also on the minds of several investment banks. For instance, Goldman Sachs believes that capacity utilization for TSMC's 7 nanometer and 6 nanometer process technologies is dropping and that a potential drop in orders will also lead to flat revenue growth for the chipmaker as the current quarter ends.

Even as its orders drop, cost increases are compelling TSMC to increase its prices, and the impact of these will be felt next year in the form of renewed revenue growth as new orders are finished. The rising prices have also led to slower adoption of its newer technologies, and extended the time it takes for the company to recover its capital expenditure.

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