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(Bloomberg) — Taiwan Semiconductor Manufacturing Co. It cut its capital spending target by 10 percent by 2022, signaling trouble for the technology industry’s world’s most valuable chip company.
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TSMC said it expects to spend $36 billion on capital goods in 2022, down slightly from $40 billion previously. Sharp cost-cutting — an important indicator of its maintenance in sectors ranging from smartphones to servers and electric vehicles — is bracing the Taiwanese company for a sharper-than-expected fall.
TSMC and its peers are grappling with Washington’s broad restrictions on doing business with China that are sending shockwaves through the world’s semiconductor industry. Chip manufacturing equipment leader Applied Materials Inc. cut its forecast for the fourth quarter, and Intel Corp. is said to be preparing to lay off thousands of people. Its stake in European gear maker ASML Holding NV, whose top customer is TSMC, fell as much as 3 percent on Thursday.
The measures announced last week are the most aggressive yet by the Biden administration, which is trying to stop China from developing technological capabilities it sees as a threat. The move, which angered Beijing, could derail a global economy already facing a possible global recession, high inflation and supply shortages.
“The company’s full-year capital spending target of 10% decline reflects prolonged weakness in smartphone and PC chip demand,” said Bloomberg Intelligence analyst Charles Schum.
They joined companies from SK Hynix Inc. to Samsung Electronics Co. in building their 16-nanometer and 28-nanometer lines in Nanjing, China, and won narrow exemptions from chip standards in Washington to get approval from the U.S., the executives said. .
The subsidies will allow Asia’s three biggest chipmakers to maintain existing plants and operations in the world’s largest semiconductor market, for example by buying, importing and upgrading American equipment. They may also be allowed to expand existing facilities covered by the license — which in TSMC’s case includes mature nodes that are several generations behind the state-of-the-art. But it is unclear whether foreign companies will be allowed to move up the technology ladder or if American workers will be allowed to work on the lines in China.
TSMC TO THE WORLD: We have no news for you, Tim Culpan.
Shares of TSMC surged this week, taking its market capitalization to about $320 billion, up from more than $550 billion in January.
The company, which reported better-than-estimated third-quarter net income of NT$280.9 billion ($8.8 billion), had forecast revenue of $19.9 billion to $20.7 billion in the December quarter, but some U.S. dollar expectations weakened in the Asian currency.
The Biden administration’s measures would limit the ability of companies that use American technology to sell products to China. They include restrictions on the export of certain types of chips used in artificial intelligence and supercomputing, as well as strict rules on the sale of semiconductor equipment to any Chinese company.
The bans will make it more difficult for chipmakers to move their inventory and beat TSMC than previous U.S. measures, Fubon Research analysts led by Sherman Shang said in a note this week. The bans mean 5%-8% of TSMC’s total revenue could be curtailed, he said. Bloomberg Intelligence estimates that TSMC could lose more than 10% of its annual sales due to the sanctions.
“It’s too early to provide a specific number, but the inventory correction will probably show the biggest impact in the first half of 2023,” CEO Sissy Wei told analysts on a conference call. He said the impact of the US sanctions would be manageable.
Still, Taiwan’s largest company is betting on its massive size and industry-leading technology. Hsinchu, Taiwan-based TSMC like Qualcomm Inc., Apple Inc. and Nvidia Corp. Lalu is the world’s largest contract chipmaker, all of which sell a significant portion of their products to the Chinese market.
On Thursday, executives reaffirmed their long-term targets for revenue and declared 2023 a growth year. TSMC is committed to continuing to expand globally as needed.
“TSMC’s guidance of at least 43% year-over-year sales growth and 59.5% gross margin above consensus estimates indicates a very mild immediate impact from the new US restrictions,” Schum said.
Hopes for the electronics industry began to darken even before Biden’s bans.
Macroeconomic shocks have dampened consumer demand and business spending, while unsold inventory remains among PC vendors. Third-quarter shipments of desktop and laptop computers fell by 15%, according to IDC data, and according to Advanced Micro Devices Inc. Existing chip companies said they were surprised by the decline in demand speed and quality. Memory makers Micron Technology Inc. and Kyoxia Holdings Corp. have announced production cuts of up to 30 percent to stabilize prices.
TSMC may not be able to count on continued demand for Apple products from its core customer, which has benefited from the Taiwanese manufacturer for years of growth.
While the Californian company unveiled new types of chips to boost the performance of its devices, it recently abandoned plans to ramp up production of the new iPhone computers, raising further questions about demand for the electronics.
(Updates from ASML shares from the third article)
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