TSMC’s Revenue Forecast, Price Target Cut By UBS Following Intel’s Processor Delay

Sep 2, 2022 11:54 AM EDT
This is not investment advice. The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

The Taiwan Semiconductor Manufacturing Company (TSMC) share price target and revenue growth forecasts were cut by investment firm UBS securities in a note released yesterday. TSMC came at the center of controversy earlier last month, when a research report suggested that Intel had delayed some of its products that would have been built on the Taiwanese company's 3nm process node, and as a result, caused capacity underutilization at TSMC. In its research report cited by the United Daily News (UDN), UBS believes that the delays at Intel will slightly hurt TSMC's revenue growth and as a result, the financial firm cut down the semiconductor company's share price target to NT$815 from an earlier NT$850.

TSMC's Growth Forecast For 2023 Cut By 2% By UBS - Research Firm Remains Optimistic For 3nm and Mature Process Technologies

The note mentions that Intel's upcoming Meteor Lake process lineup will face several headwinds at the time of launch, such as a slowing down of the personal computing market, a slowdown in outsourcing and Intel's own process technology problems to result in a delay of orders that are made to TSMC.

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As a result, TSMC will slow down its capital expenditure next year, from an all time high of $40 billion this year to stand at $37 billion next year and slightly grow to $38 billion in 2024 believes the research firm. Subsequently, UBS also revises its earnings per share (EPS) forecasts for TSMC to NT37.82, NT$38.77 and NT$46.88 for 2022, 2023 and 2024 - down from the earlier NT$37.85, NT$39.51 and NT$47.99 for the three years, respectively.

It also reduces TSMC's share price target to NT815 from NT$850 but continues to keep a 'Buy' rating for the shares. However, as the UDN also outlines, this reduced share price target is still the second highest out there for the Taiwanese fab.

TSMC's chief executive officer Dr. C.C. Wei. Dr. Wei ranks at number 26 in Fortune Magazine's list of World's 50 Greatest Leaders. Image: TSMC

Despite the slightly downcast sentiment stemming from Intel's order delays, overall, UBS maintains an optimistic outlook for TSMC. It goes on to highlight that the chipmaker's 3-nanometer (nm) process technology family will do well as it starts mass production. UBS believes that it is confident in the yields for the 3nm technology and that the manufacturing process will become the leader in the market starting in 2023 and 2024.

However, a doubtful area for TSMC according to UBS is the company's mature technology platforms - which were the second worrisome element of the research note.

Moving towards the demand side of things for 3nm, the research firm is hopeful that the technology node will see high interest in the market. This will be due to several reasons, including the demand for high performance computing. UBS believes that the 3nm products will touch the current market share of TSMC's 5nm and 7nm in 2025. Additionally, it also believes that the share of TSMC's 7nm process can touch a whopping 80% to 75%.

Sharing further expectations for 3nm growth, the advanced process technology will run into the single digits in terms of market share next year and grow it to 15% and 20% in 2024.

TSMC is only one of two contract chip manufacturers that can produce chips on the 3nm process, with the other being Samsung Foundry. However, previous yield problems at Samsung have cast doubt at its 3nm progress, and when combined with questions about the number of orders that it might have received, analysts are hesitant to make definitive claims.

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