The world’s most valuable chip manufacturer, Taiwan Semiconductor Manufacturing Co. (TSM stock), dramatically signaled problems for the technology sector by slashing its 2022 capital investment plan by around 10%.
TSMC (TSM stock) Cuts Spending
According to Taiwan Semiconductor Manufacturing Co. (NYSE:TSM), it would spend less on capital equipment in 2022 than it did—approximately $36 billion. The drastic cut in spending suggests the Taiwanese company is preparing for a wider-than-anticipated slowdown, which is a crucial signal of its expectations for development across industries, from smartphones to servers and electric vehicles.
The broad constraints Washington has placed on doing business with China are causing shockwaves throughout the world’s semiconductor sector, which TSMC and its competitors are currently battling. While Intel Corp. is said to be getting ready to dismiss hundreds of employees, the top manufacturer of chip-making machinery Applied Materials Inc., cut its prediction for the fourth quarter. Shares of TSMC’s largest client, European gear manufacturer ASML Holding NV, dropped as much as 3% on Thursday.
The Biden administration has made its most aggressive efforts yet to prevent China from acquiring technology capabilities that it views as a threat. The moves, which have angered Beijing, pose a threat to the global economy, which is already coping with a looming global recession, skyrocketing inflation, and persistent supply bottlenecks.
According to Bloomberg Intelligence analyst Charles Shum, “the company’s 10% reduction in full-year capital investment forecast signals continuing downturn in smartphone and PC chip demand.”
Executives said they obtained a US license to keep running and expanding its 16 and 28 nm plants in Nanjing, China. They joined firms like SK Hynix Inc. and Samsung Electronics Co. in obtaining limited exemptions to the chip limitations from Washington.
The incentives enable the three major chipmakers in Asia to preserve their current facilities and business operations in the largest semiconductor market in the world, for example, by purchasing, importing, and modernizing American equipment. They could also be permitted to expand already licensed facilities, which in TSMC’s case, would entail older, more advanced nodes that are many generations below modern standards. It’s unclear, though, if foreign companies will be permitted to advance technologically or hire Americans to work on the production lines in China.
The market capitalization of TSMC (TSM stock) decreased this week from over $550 billion in January to roughly $320 billion due to the share price collapse. On Thursday morning in New York, the American depositary receipts decreased by 1.1%.
Although it assumes certain US currency assumptions when Asian currencies have declined, the business, which recorded better-than-estimated third-quarter net profits of NT$280.9 billion ($8.8 billion), is predicting sales of $19.9 billion to $20.7 billion in the December quarter.
The Biden administration’s regulations restrict US-based businesses’ ability to market their goods in China. They include stricter regulations on selling semiconductor equipment to any Chinese enterprise and limitations on exporting specific chip types used in artificial intelligence and supercomputing.
The limitations make it harder for chipmakers to shift their stockpiles and have a more significant negative impact on TSMC (TSM stock) than previous US steps, according to analysts from Fubon Research led by Sherman Shang in a report this week. According to them, the limits would probably result in a 5%–8% reduction in TSMC’s overall income. According to Bloomberg Intelligence, the limits might cost TSMC (TSM stock) to lose more than 10% of its yearly revenue.
On a conference call with investors, Chief Executive Officer C. C. Wei said it was “too early to establish an exact number, but the inventory correction would likely have its maximum impact somewhere in the first half of 2023.” He predicted that the US limits’ effects would be bearable.
The giant corporation in Taiwan is still counting on its enormous scale and cutting-edge technology to overcome its most challenging obstacles in years. The largest contract chip manufacturer in the world, TSMC (TSM stock), is situated in Hsinchu, Taiwan. It manufactures chips for companies including Qualcomm Inc., Apple Inc., and Nvidia Corp. They sell a sizable amount of their goods into the Chinese market.
Executives confirmed their long-term revenue goals on Thursday and announced 2023 to be a year of growth. TSMC (TSM stock)also promised to keep growing as required across the world.
“TSMC’s projection is above consensus estimates and indicates relatively modest immediate impact from the new US limitations,” Shum said. “TSMC’s guidance of at least 43% year-over-year sales growth and 59.5% gross margin.”
Even before the disruption caused by Biden’s regulations, the outlook for the electronics industry had started to deteriorate.
Consumer demand and company expenditure have been restrained by macroeconomic shocks, while PC providers’ unsold inventories accumulated. According to IDC statistics, third-quarter sales of desktop and laptop computers fell 15%. Chip firms like Advanced Micro Devices Inc. have expressed astonishment at the speed and harshness of the decline in demand. To keep costs stable, memory manufacturers Micron Technology Inc. and Kioxia Holdings Corp. have announced up to 30% production reductions.
The biggest customer of Taiwanese manufacturer TSMC (TSM stock), Apple, whose expansion has helped the company for years, may not be able to count on ongoing demand for its goods.
The California-based corporation has introduced new types of semiconductors to improve the performance of its products. Still, it recently shelved plans to raise manufacturing of the new iPhones, creating more concerns about the overall demand for electronics.
Featured Image: DepositPhotos @ EdZbarzhyvetsky
Author Valerie Remorosa 
