TSMC Cuts Expansion Plan to $36 Billion as Outlook Dims

Taiwan Semiconductor Manufacturing Co. (TSMC) is cutting its 2022 capacity expansion budget to $36 billion from the original $40 billion released in July, as the demand outlook for smartphones and other consumer electronics makers is weak.

The world’s leading maker of advanced chips for Apple’s iPhone and other smartphones says demand for its top-of-the-line 7nm chips has fallen, affecting the node’s utilization rate. The company didn’t offer any figures on usage — a key profitability metric.

“While the ongoing semiconductor inventory correction will impact our utilization rate in the first half of 2023, we expect our business to be supported by stronger demand for our differentiated, leading edge and advanced specialty technologies” beginning in the second half of 2023, the CEO said. TSMC CC Wei said during the company Third quarter earnings were announced on October 13 with industry analysts.

Wei said 2023 will be a growth year for TSMC, while the overall semiconductor industry will shrink. He declined to offer details. The use of TSMC’s 7-nm and 6-nm nodes will decrease in the first half of 2023 compared to the last three years, he added.

The slowdown comes after solid growth

The slowdown reverses strong growth that began in 2020, when the Covid pandemic sparked demand for expanding data centers and mobile electronics as part of the work-from-home trend. The semiconductor shortage has greatly affected system manufacturers, including automotive and defense companies.

Half of TSMC’s capex cuts this year are the result of a shortage of chip-making tools from suppliers such as ASML, which ironically have not been able to buy enough chips to manufacture their equipment.

TSMC, which led the world with its latest 5-nm chips, plans to produce its first 3-nm chips within months. Samsung, TSMC’s second-ranked rival in the chip foundry business, became the first to be published this year production of 3-nm chips. Demand for 3-nm chips will contribute low single-digit percentages to the company’s revenue through the second half of 2023, TSMC said.

Some analysts have expressed surprise at the decline in 7-nm usage.

“We’ve gotten too used to expecting TSMC to always perform much better,” Goldman Sachs analyst Bruce Lu said on the call.

TSMC’s customer inventories are at a 25-year high, said Mehdi Hosseini, an analyst at Susquehanna. The fall in inventory will take place during the first half of 2023, he added.

The main impact of the inventory correction on TSMC will come during the first half of 2023, CEO Wei said.

Geopolitics of chips

Most analysts on the call had questions about geopolitical issues between the US and China that are forcing change in global semiconductor supply chains.

TSMC said it is in preliminary evaluation of a potential chip foundry in Europe. Following US announcement of new restrictions last week on the export of chips and related technology to China, TSMC confirmed that it has a license to manufacture 16-nm chips at the company’s facility in Nanjing, China.

Despite higher chip manufacturing costs at new sites in the US and Japan, the company said it will maintain long-term gross margins of 53% and above. TSMC’s Q3 2022 gross profit exceeded 60%.

This article was originally published on EE Times.

Alan Patterson He spent most of his career as an electronics journalist in Asia. In addition to EE Times, he was a reporter and editor for Bloomberg News and Dow Jones Newswires. He lived for more than 30 years in Hong Kong and Taipei and during that time covered technology companies in the Greater China region.