TSMC gives cautious outlook despite strong earnings

Taiwan Semiconductor Manufacturing Company posted strong financial earnings but gave a cautious outlook, saying it expected 2023 to be a “slight growth year” owing to a cyclical downturn in the chip industry.

The world’s largest contract manufacturer of chips reported a 78 per cent increase in net profit year on year to NT$295.9bn (US$9.6bn) for the fourth quarter, exceeding analyst forecasts of NT$287.4bn, with profitability boosted by a favourable exchange rate and cost-cutting.

But TSMC’s chief executive CC Wei told investors on an earnings call on Thursday that he expected 2023 to be a “slight growth year” after customers’ chip inventories normalised in the second half of the year.

The Hsinchu-based chip company posted NT$625.5bn in revenue in the fourth quarter, missing analyst estimates of NT$636bn for the first time in two years. TSMC’s shares fell 27 per cent in 2022 as investors priced in expectations that the pandemic boom for electronics was coming to an end.

TSMC spent US$36.3bn in 2022 on capital expenditure, cutting its investment budget by 10 per cent in October over concerns about deteriorating market conditions. The company has the world’s most advanced fabrication technology and controls more than half of the global market for made-to-order chips but is confronting fierce competition from Intel and Samsung, which are both increasing investment.

Randy Abrams, head of Asia semiconductors equity research at Credit Suisse, said the revenue figures reflected “weak consumer tech demand” and rising chip inventories after customers stockpiled supplies during the pandemic.

Abrams said customer inventories should “deplete towards pre-pandemic levels” in the coming quarters after clients cut back orders at the foundries. He added that demand for chips could recover if inflation eased and there was an economic rebound in China.

TSMC has embarked on an ambitious global expansion project, building fabrication plants in Japan and in the US state of Arizona and investing in facilities in the southern city of Kaohsiung in Taiwan.

The Taiwanese chip giant is confronting geopolitical challenges as Washington moves to cut off the supply of key advanced semiconductors to China, while US officials are seeking to reduce its own dependence on Taiwan for chip supplies.

Last month, the Financial Times reported that TSMC was in advanced talks with key suppliers about setting up its first potential European plant in Germany.

Additional reporting by Hudson Lockett in Hong Kong