TSMC cuts capex on utility delays, demand issues; careful with the outlook

TAIPEI, Oct 13 (Reuters) – Taiwanese chipmaker TSMC ( 2330.TW ) cut its annual investment budget by at least 10% for 2022 and struck a more cautious tone than usual about upcoming demand, flagging challenges from rising cost inflation and predicting a chip downturn next year.

Speaking on the latest set of US export controls aimed at slowing China’s progress in advanced chip manufacturing, TSMC CEO CC Wei said on Thursday that it had been granted a one-year authorization covering its factory in Nanjing, China.

The new rules require companies looking to supply Chinese chip makers with advanced equipment to obtain a license from the US Commerce Department, although Washington is expected to spare some foreign companies operating in China.

“Based on our initial reading and feedback from customers, the new regulations set the control threshold to a very advanced specification, primarily used for AI or supercomputing. Therefore, our initial assessment is that the impact on TSMC is limited and manageable,” Wei said. .

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest contract chip maker, makes most of its chips in Taiwan.

After posting an 80% rise in third-quarter profit, the strongest growth in two years, TSMC said it was more conservative in planning investments for 2023.

“We expect the semiconductor industry is likely to slow down in 2023, but TSMC is not immune either,” Wei said in a media briefing.

TSMC’s dominance in making some of the world’s most advanced chips for high-end customers such as Apple Inc ( AAPL.O ) and Qualcomm Inc ( QCOM.O ) had shielded it from the downturn flagged by chipmakers including AMD ( AMD.O ) and Micron Technology Inc (MU.O).

However, the Taiwanese company’s comment on Thursday was more in line with industry concerns about decades of high inflation, rising interest rates and COVID-19 shutdowns in China that have squeezed the consumer electronics market.

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TSMC, Asia’s most valuable listed firm, cut its capital expenditure (capex) for 2022 to about $36 billion. In July, the company said it would skim the lower end of its previous $40 billion investment guidance to $44 billion this year, with some spending pushed to next year because of a delay in the delivery of some chip-making equipment .

“Approximately half of the change is due to capacity optimization based on the current medium-term outlook, and the other half is due to continued utility delivery challenges,” Chief Financial Officer Wendell Huang said in a media call.

For the fourth quarter, TSMC forecast a 29% increase in revenue to between $19.9 billion and $20.7 billion, compared to $15.74 billion a year earlier.

The company said its data center and automotive businesses remained stable for now, and the business overall will be more robust than others.

“We say 2023 is still a growth year for TSMC and the overall industry is likely to decline,” Wei said.

As early as July, TSMC said it had seen little impact from the current downturn cycle in the sector and that long-term demand for the chips was “well in place” thanks to businesses shopping for high-performance data chips used in 5G networks and data centers, as well as increased usage of chips in gadgets and vehicles.

Net profit for the third quarter ended September rose to T$280.9 billion ($8.81 billion), compared with the T$265.64 billion average of 21 analyst estimates compiled by Refinitiv.

Revenue for the quarter rose 36% to $20.23 billion, versus TSMC’s previously estimated range of $19.8 billion to $20.6 billion. China accounted for just 8% of revenue in the third quarter, down from 13% in the second.

Shares of TSMC have fallen nearly 36% so far this year, giving it a market value of $323.7 billion. The stock fell 0.6% on Thursday, compared with a 2.1% drop for the benchmark index (.TWII).

($1 = 31.8870 Taiwan dollars)

Reporting by Ben Blanchard and Sarah Wu; Written by Sayantani Ghosh; Editing by Christian Schmollinger, Edmund Klamann and Ana Nicolaci da Costa

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