(Bloomberg) – Taiwan Semiconductor Manufacturing Co. cut its full-year revenue outlook and delayed the start of production at its flagship Arizona project to 2025, two setbacks for a chipmaking kingpin struggling with geopolitical tensions and a deep market meltdown.
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TSMC’s surprise cut in 2023 revenue projections sent a warning to investors that the global electronics crisis could linger for some time despite a boom in AI development. And the delay in the United States — a consequence of both a lack of skilled American workers and soaring costs — underscores the difficulties of making chips there despite Washington’s insistence on reducing global reliance on Asian facilities.
The main chipmaker for Apple Inc. and Nvidia Corp. forecast a 10% drop in sales this year, compared to previous forecasts of a single-digit decline. The executives also warned investors to temper their expectations of a chip boom for AI model training, saying it’s uncertain whether the surge in demand in the wake of ChatGPT will be long-lasting. term or durable. Shares of chip companies, including ASML Holding NV, one of TSMC’s main gear suppliers, fell in Europe.
“The short-term frenzy over AI demand certainly cannot be extrapolated to the long term,” Chairman Mark Liu told analysts on a conference call. “Nor can we predict for next year how the sudden demand will continue or level off.”
Read more: TSMC delays Arizona chip release to 2025 due to worker shortages
TSMC released its outlook after posting its first quarterly profit decline in four years, highlighting the extent of a global drop in demand for smartphones and PCs. It reported a 23% drop in net income to NT$181.8 billion ($5.85 billion). Executives said capital intensity — a measure of the rate at which TSMC buys or invests in capital goods — will slow in coming years.
On Thursday, executives said they were also delaying the planned start of production at its new Arizona plant to 2025. President Joe Biden’s administration has made expanding domestic chip production a top strategic priority, backed by grants in the Chips and Science Act that could top $50 billion. As the United States clashes with China, American politicians have worried about the vulnerability of Taiwan, which Beijing has claimed as its own territory.
To ease customer concerns about geopolitical uncertainties in the Taiwan Strait, TSMC has diversified its manufacturing footprint. He is investing $40 billion to create two fabs in Arizona and is building an $8.6 billion facility in Japan with government financial backing. The company remains in talks with Tokyo over subsidies for a second facility, which could be located next to its current plant in Kumamoto.
The hiccups in Arizona, however, call into question TSMC’s ability to manufacture chips overseas as efficiently as at home.
“We are working to improve this by sending qualified technicians from Taiwan to the United States,” Liu said.
Investors are still betting on TSMC becoming a heavyweight in the global race to develop next-generation AI.
Nvidia client chips are essential for ChatGPT, autonomous driving and a new generation of AI products. The US company’s valuation briefly topped $1 trillion this year thanks to Wall Street’s obsession with generative AI, bolstering the fortunes of TSMC and other electronics companies that provide the infrastructure needed to train AI models.
“While its lower revenue guidance and exit from manufacturing in Arizona were among the negatives, we believe earnings have generally bottomed out as the company looks set to aggressively increase node lines by 3 nm,” said Amir Anvarzadeh at Asymmetric Advisors. “Given that TSMC is the only viable producer of AI chips and has the right packaging technology, we expect a huge increase in revenue and profit, especially from the next term.”
More immediately, the iPhone chipmaker is struggling to maintain margins and growth in its smartphone and consumer-focused business, which has shrunk alongside a post-Covid global economic downturn.
The signs are mixed as to when this crisis may end. TSMC forecast sales of $16.7 billion to $17.5 billion this quarter, weaker than expected. Leaders said China’s post-Covid economic recovery has been slower and weaker than expected. And the company reiterated that 2023 capital spending is expected to be at the lower end of a previously forecast range of $32 billion to $36 billion.
Samsung Electronics Co. this month reported its worst quarterly revenue decline since at least 2009. Global smartphone shipments fell 11% between April and June, the sixth consecutive quarterly decline, according to estimates from research firm Canalys.
But the backlog of unsold phones is shrinking. And this week, ASML revealed that orders rose in the second quarter after demand picked up for its chipmaking machines.
“The smartphone market is sending early signals of recovery,” said Canalys analyst Le Xuan Chiew. “Smartphone inventory has started to thin out as smartphone vendors have prioritized reducing inventory of older models to make room for new launches.”
Click here for an overview of TSMC’s numbers.
–With help from Cindy Wang, Gao Yuan, Betty Hou and Olivia Tam.
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