TSMC Cuts 2023 Capex After Record Q4 As Chip Demand Weakens

Taiwanese chipmaker TSMC warned on Thursday that first-quarter revenue would drop as much as 5% and it would slash annual investment as the major Apple Inc supplier expects softer demand due to a slowing global economy. The bearish outlook follows a forecast-beating 78% jump in fourth-quarter profit, underscoring the depth of a sharp slowdown in a global technology sector that is grappling with worsening consumer demand brought about by decades-high inflation rates, rising interest rates and an economic downturn.

Still, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's most valuable chipmaker, forecast growth would return in the second half of this year.

"We forecast the semiconductor cycle to bottom sometime in first half and see a recovery in second half 2023," CEO C.C. Wei said, adding the rebound would be boosted by new product launches such as artificial intelligence-enabled goods.

The world's largest contract chipmaker said its capital expenditure in 2023 would decrease to $32-36 billion from $36.3 billion in 2022.

Hopes of a recovery in the second half of the year and capex cut to manage supply sent the U.S.-listed shares of TSMC up 7.5%.

First-half revenue is seen posting a mid to high single-digit percent decline. First-quarter revenue is expected in a range of $16.7 billion to $17.5 billion, compared with $17.57 billion a year earlier.

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TSMC's dominance in making some of the most advanced chips for high-end customers such as Apple has shielded it from downturn. But the company is likely to fall victim to the deepening slowdown, with the current quarter likely to mark its first sales drop in four years.

The fourth quarter "was dampened by end-market demand softness and customers' inventory adjustment," Chief Financial Officer Wendell Huang told a briefing, adding such conditions will carry into the first quarter.

"Given the near-term uncertainties, we continue to manage our business prudently and tighten up our capital spending where appropriate," Huang said. "Our disciplined capex and capacity planning remain based on the long-term market demand profile."

TSMC, Asia's most-valuable listed firm, backed by billionaire Warren Buffett's investment conglomerate Berkshire Hathaway Inc, has repeatedly said business would continue to benefit from a "mega-trend" of demand for high-performance computing chips for 5G networks and data centres, as well as increased use of chips in gadgets and vehicles.

It reiterated on Thursday slower demand was a cyclical issue and 2023 overall would be a slight growth year for the company.

TSMC said it plans to ramp up production outside Taiwan, as global attention focuses on its investment plan and various governments dangle incentives to boost chip manufacturing in their countries.

It said at least one-fifth of its 28 nanometre (nm) and more advanced node capacity, which accounted for most of the company's revenue in 2022, could be overseas "within five years or more."

TSMC late last year began construction of a second chip factory in Arizona which will start production in 2026, using advanced 3 nm. Its total investment in the U.S. project amounts to $40 billion.

CEO Wei said TSMC was considering building a second fab in Japan, and in Europe it was also evaluating the possibility of building a speciality fab focused on the auto industry without providing further details.

He added the company expected the auto chip shortage to be "relaxed quickly".

For October-December, TSMC booked record net profit of T$295.9 billion ($9.72 billion) from T$166.2 billion a year earlier. That compared with the T$289.44 billion average of 21 analyst estimates compiled by Refinitiv.

Revenue climbed 26.7% to $19.93 billion, versus TSMC's prior estimated range of $19.9 billion to $20.7 billion.

TSMC's share price fell 27.1% in 2022, but is up 8.5% so far this year giving the firm a market value of $412.78 billion. The stock rose 0.4% on Thursday versus a 0.1% fall for the benchmark index.