TSMC issues cautious outlook despite strong earnings

Taiwan Semiconductor Manufacturing Company posted strong financial results but gave a cautious outlook, saying 2023 will be a “moderate year of growth” due to a cyclical downturn in the chip industry.

The world’s largest contract chip maker reported a 78 percent year-on-year increase in net profit to NT$295.9 billion (US$9.6 billion) for the fourth quarter, beating analysts’ forecasts of NT287.4 billion $, with profitability boosted by a favorable exchange rate Cost Saving.

But TSMC CEO CC Wei told investors on a conference call on Thursday that he expects 2023 to be a “modest growth year” after customers’ chip inventories normalized in the second half of the year.

The Hsinchu-based chip company posted fourth-quarter revenue of NT$625.5 billion, falling short of analyst estimates of NT$636 billion for the first time in two years. Shares of TSMC fell 27 percent in 2022 as investors priced in expectations that the electronics pandemic boom was ending.

TSMC spent $36.3 billion on capex in 2022 and cut its capex budget by 10 percent in October over concerns about deteriorating market conditions. The company has the world’s most advanced manufacturing technology and controls more than half of the global custom chip market, but faces stiff competition from Intel and Samsung, both of which are increasing their investments.

Randy Abrams, head of Asia Semiconductors Equity Research at Credit Suisse, said the sales numbers reflect “weak consumer demand for technology” and rising chip inventories after customers stockpiled during the pandemic.

Abrams said customer inventories “should be reduced to pre-pandemic levels” in the coming quarters after customers cut orders at foundries. He added that demand for chips could recover if inflation eases and China’s economy recovers.

TSMC has embarked on an ambitious global expansion project, establishing manufacturing facilities in Japan and Arizona, and investing in facilities in the southern city of Kaohsiung, Taiwan.

The Taiwanese chip giant faces geopolitical challenges as Washington seeks to halt shipments of key advanced semiconductors to China, while US officials seek to reduce its own reliance on Taiwan for chip supplies.

Last month, the Financial Times reported that TSMC was in advanced discussions with key suppliers to set up its first potential European plant in Germany.

Additional coverage by Hudson Lockett in Hong Kong

https://www.ft.com/content/077f9665-4fd1-4c3e-aae6-b3fe4071e503 TSMC issues cautious outlook despite strong earnings

Adam Bradshaw

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