TSMC’s 2022 Profit Forecast Cut By 10% By Investment Bank Due To Chip Industry Shrinkage

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The Taiwan Semiconductor Manufacturing Company (TSMC) is likely to face an inventory correction in the first half of next year believes Daiwa Capital Markets. This correction had first been projected for the second quarter of this year, then postponed to the second half and now the investment research firm has further moved it ahead to 2022. As a result, Daiwa has reduced TSMC's profit estimate by 10% but at the same time increased the chipmaker's price target to 580 Yuan from an earlier 550 Yuan - reflecting is confidence in the long-term prospects of Taiwan's premium chipmaker.

TSMC's Hold Rating Reiterated By Daiwa As Firm Forecasts Chip Industry Revenue Shrinkage For 2022

Details of Daiwa's report, courtesy of UDN, show a mixed bag of optimism and pessimism for TSMC and the chip sector as a whole. The firm's 10% reduction in TSMC's profits for 2022 reflects its view that the chipmaker will face a demand reduction next year due to an economic slowdown. At the same time, its price target increase reflects the opinion that Daiwa believes that TSMC's best years are ahead of it.

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To prove its point, the firm states that once 2022 is over, TSMC will be back on a growth trajectory. This is reflected in a earnings per share estimate of 28.7 Yuan for 2023, which marks for a 22.6% growth over 2022. However, EPS estimates for 2021 and 2022 stand at 22.1 and 23.4 Yuan respectively, with the 2022 value marking for a 5.8% annual growth. This will reflect the chip sector as a whole shrinking by 2% after having grown by 13% this year states Daiwa.

Two primary drivers of growth in the semiconductor sector this year and the next will be fifth-generation (5G) cellular networks and high-performance computing (HPC) platforms. Daiwa believes that 5G smartphone shipments will grow by more than 100% year-over-year this year with a 30% market penetration that's expected to grow to 50% in 2020. Additionally, HPC devices will follow a compound annual growth rate (CAGR) of 21% until 2022 forecasts the firm.

Inside TSMC's 8-inch Fab 3; Credit: Taiwan Semiconductor Manufacturing Co.,

Currently, TSMC is facing a water shortage and an increased influx of orders from automakers. Both of these have ensured that the fab is operating in a difficult environment, as it plans to rapidly jump from one chip node to another. TSMC's first shipments of semiconductors built on the 5-nanometer process were made last year, and as it plans to ramp up production of the latest process in 2021, it is already building a new facility for a new manufacturing process.

This process, referred to as N3 internally, will further reduce transistor dimensions over 5nm and TSMC plans for it to enter mass production in 2022. These developments come at a time when Cupertino tech giant Apple Inc, widely thought by many to be TSMC's largest customer, is busy introducing its in-house processors for the Mac lineup - a move expected to increase the orders that it places with TSMC.

TSMC's N3 node is on track to deliver historic performance and power consumption improvements stated the company's chairman Dr. Mark Liu at the International Solid-State Circuits Conference (ISSC) last month. Dr. Liu also highlighted technological breakthroughs made by his firm in materials sciences. He revealed that TSMC has developed a new material that will work with carbon nanotube channels to create new transistors.

He also confirmed that the 3nm manufacturing process is on track, but if Daiwa's forecast of an inventory correction for 2022 stands the test of time, then the Taiwanese fab will face difficulties in generating maximum returns for its investment in the 5nm node. While TSMC has not publicly commented on the matter, industry rumors have stated that the fab is aiming for an eye-watering 70% 5nm capacity increase by 2021 end to boost its output to 120,000 wafers/month.