TSMC Forecasts Up to 16 Percent Drop in Q2 Sales Amid Struggles to Clear Inventory, Weak Global Economy

Taiwanese chipmaker TSMC forecast on Thursday a fall of as much as 16 percent in current-quarter sales amid a weakening global economy and as the Apple Inc supplier struggles to clear inventory.

As the biggest maker of chips that power products as varied as phones, cars and advanced computers, Taiwan Semiconductor Manufacturing Co (TSMC) must navigate an uncertain industry outlook and a US-China chip spat that could make it vulnerable.

TSMC forecast revenue of $15.2 billion (roughly Rs. 1,24,900 crore) to $16 billion (roughly Rs. 1,31,500 crore) in the quarter ending June 30, down from $18.16 billion (roughly Rs. 1,49,200 crore) a year prior.

Earlier, the company posted a 2 percent rise in first-quarter net profit, beating market expectations, but that was still the smallest quarterly growth in almost four years as global economic woes dented demand for chips.

Speaking on an earnings call, Chief Executive C.C. Wei said first-quarter results were hurt by "softening end-market demand", while inventory levels were "much higher" than expected and that could extend into the third quarter.

He said he expects business in the second half to be better than the first six months and that the company was investing for long-term demand despite current softness in the market.

January-March net profit rose to TWD 206.9 billion (roughly Rs. 55,600 crore) from TWD 202.7 billion (roughly Rs. 54,500 crore) a year earlier, compared with the TWD 192.8 billion (roughly Rs. 51,800 crore) average of 21 analyst estimates compiled by Refinitiv.

TSMC, Asia's most valuable listed company, said first-quarter revenue dropped 4.8 percent year-on-year, in line with the company's previous forecast.

High-performance computing chips and smartphone chips represented 44 percent and 34 percent of revenue respectively. Net revenue from China grew to 15 percent from 12 percent, while net revenue from North America fell to 63 percent from 69 percent.

Analysts said TSMC sales will be under pressure in the second quarter, which is traditionally a slow season for electronics manufacturers and as major clients cut back on orders.

The chipmaker forecast 2023 capital expenditure of $32-36 billion (roughly Rs. 2,63,000 crore to Rs. 2,95,800 crore), unchanged from a previous estimate. That compared with $36.3 billion (roughly Rs. 2,98,300 crore) in 2022.

First-half revenue is likely to fall around 10 percent in US dollar terms year-on-year, TSMC said, while it sees 2023 revenue falling by a low-to-single mid-digit percent.

TSMC's dominance in making some of the most advanced chips for high-end customers such as Apple has shielded it from a broader industry downturn. But the chipmaker is likely to fall victim to the deepening slowdown.

It has repeatedly said business would continue to benefit from a "mega-trend" of demand for high-performance computing chips for fifth-generation communications (5G) networks and data centres, as well as increased use of chips in gadgets and vehicles.

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

CEO Wei said TSMC was evaluating the possibility of building a speciality fabrication plant in Europe for auto chips.

TSMC late last year began construction of a second chip factory in Arizona which will start production in 2026, using advanced 3 nm technology, supporting Washington's plans for more chip-making at home. Its total investment in the U.S. project amounts to $40 billion (roughly Rs. 3,28,700 crore).

TSMC's share price fell 27.1 percent in 2022, but is up around 14 percent so far this year giving the chipmaker a market value of $433.9 billion (roughly Rs. 35,65,400 crore). The stock rose 0.6 percent on Thursday versus a 0.4 percent fall in the benchmark index.

© Thomson Reuters 2023