TSMC Share Price Drops To Record Low As Rival Takes Chipmaking Lead & Goldman Makes Dark Prediction

TSMC Water plant fire
Smoke billows from a fire at an under-construction water plant near TSMC's 5nm chip plant. Image: Xie Jinsheng/UDN

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The Taiwan Semiconductor Manufacturing Company's (TSMC) share price sank to a record low in Taiwan earlier today when its rival Samsung Electronics took the lead in kicking off advanced semiconductor manufacturing. TSMC and Samsung are neck to neck when it comes to producing chips built through the advanced 3-nanometer (nm) technologies, and Samsung's announcement beat TSMC to the punch as the latter is expected to kick off production later this year.

TSMC's fortune on the stock market was not helped by investment bank Goldman Sachs either, which reduced the cmpany's share price target as it cited weakening demand will lead to lower capacity utilization for the company's plants.

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TSMC Shares Drop To New 52-week Low Of NT$476 As Trading Closed In Taiwan Earlier Today

Samsung's announcement did not come as a surprise, since the Korean media had already leaked it last week. However, it does come at a time when the world's second largest contract chip manufacturer is facing the heat for alleged yield problems with its advanced chip manufacturing technologies, which have also created problems for its customers.

The complex and capital intensive nature of the semiconductor industry leaves little room for new players to enter, and leaves designers with few options to get their products manufactured. TSMC is the commanding contract manufacturer globally, and ships larger volumes than Samsung - which caters mostly to its own products and a handful of other customers.

Samsung's announcement and a price target reduction by Goldman Sachs did not bode well for TSMC's share price in TAiwan earlier day, as the chipmaker's stock closed at a 52-week low price of NT$476. The current inflationary environment coupled with high energy prices has hammered share prices of several companies, including TSMC, and today's news was the final straw to push the price at a new low for the year.

TSMC's shares sank by almost 20% in trading in Taiwan earlier today.

In another report that didn't bode well for the share price, the Taiwanese publication United Daily News (UDN) shared Goldman Sachs's latest take on TSMC. UDN suggests that the bank has cut down TSMC's share price target by 6% to NT$857 from NT$912. The main reason behind the price target reduction is the investment bank's belief in demand slowdown in the semiconductor market.

These worries have remained on analysts' minds since last year when chip manufacturers sped up production to meet increased orders from automakers after the industry faced a serious shortage due to a sharp post-pandemic economic recovery.

Now, with companies reporting steady inventories, Goldman Sachs believes that inventories for semiconductors built on older manufacturing processes are currently stable, which will translate into lesser demand for TSMC to make new chips. The bank is the first to include this into a price target downgrade, but the worries of correction are present elsewhere as well.

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Specifically, Goldman Sachs believes that the capacity utilization rates for TSMC's 8-inch and 12-inch wafers will reduce to 89% and 91% respectively next year. However, it highlights that despite the drop, TSMC can further increase chip price by 5% and 4% for the two categories respectively, and end up negating some of the effects of reduced demand.

Furthermore, even though demand might drop, Goldman is optimistic about TSMC's revenue growth in 2023. It believes that the fab's U.S. dollar revenue will grow by 13.3%, and owing to the lower capacity utilization, its gross margin will cross 53%.

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