TSMC Cuts 2023 Sales Forecast and Expects a 10% Drop Despite AI Boom

BEIJING, July 21 (TiPost)— Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s top contract chipmaker, is confronted by increasing headwinds despite rising demand from booming artificial intelligence (AI).

Credit：Visual China

TSMC recorded its first quarterly decline in profit since the second quarter of 2019, highlighting weaker demand for electronics amid macroeconomic headwinds. The net income in the quarter ended June 30 plummeted 23.4% year-over-year (YoY) to NT$181.72 billion (US$5.93 billion), still beating the Wall Street projection of NT$172.55 billion. The diluted earnings per common share (EPS) slipped 23.3% YoY to NT$7.10. A slide of around 23% was still better than analysts’ estimated 27%.

TSMC posted net revenue of NT$480.84billion (US$15.68 billion) with a 10% YoY decrease that quarter, rough in line with the company’s forecast range between US$15.2 billion to US$16 billion. That suggests a consecutive fourth month of decline in revenue. Revenue in March slumped 15% YoY to NT$145.41 billion, the first monthly revenue fall for the chipmaker since May 2019.

The gross margin fell 2.2 percentage points sequentially to 54.1%, topping the company’s guidance between 52% and 54%, and operating margin down 3.5 percentage points to 42%, compared with the guidance range of 39.5% to 41.5%.

For TSMC, the biggest headwind remains the macro economy.The Taiwan-based company blamed its 5.5% quarter-over-quarter decrease in revenue for the overall global economic conditions, which dampened the end market demand and led to customers’ ongoing inventory adjustment.

Most of TSMC’s major segments continued cooling down in the second quarter. Sequentially, revenue from the High-Performance Computing (HPC) platform, Smartphone, the Internet of Things (IoT) and Others fell 5%, 9%, 11% and 5% respectively, while Automotive and Digital Consumer Electronics (DCE) increased 3% and 25% respectively. HPC and Smartphone contributed 44% and 33% of net revenue respectively, while IoT, Automotive, DEC and Others each accounted for 8%, 8%, 3% and 4%. By technology, 5-nanometer (nm) process technology generated 30% of total wafer revenue, while 23% from 7nm. Advanced technologies, defined as 7nm and below, accounted for 53% of wafer revenue, versus the previous quarter’s 51%.

Analysts believe that TSMC’s less-than-expected slide in both the top and bottom line was mainly due to AI frenzy. TSMC is a major contract manufacturer for Nvidia graphics cards. Nvidia is the semiconductor designer that dominates the market for AI chips, which empower AI systems including the large language model behind ChatGPT. Demand for Nvidia’s AI chips was elevated as tech firms across the world, especially in U.S. and China, scrambled for advanced chips amid a highly competitive AI race. Nvidia said in March it has modified some of flagship products including A100 and H100 for exports to China, as the U.S. regulators last year banned it from selling its most advanced chips to China. It was reported last month that recent orders from TikTok parent ByteDance alone could equal to all Nvidia commercial GPU orders in the whole Chinese market in 2022. At an earnings call, TSMC CEO suggested chip demand related to AI has blown up and his company would not completely address shortage of AI chips until the end of 2024.

Surprisingly, TSMC lowered its 2023 revenue forecast when releasing the second quarter results. It expected revenue for the year to drop about 10%, while the previous projection is a low-to-mid single digit decrease. Management also warned investor not to set too high expectations for demand for AI products. The short-term frenzy about AI demand definitely cannot be extrapolated for the long run, TSMC Chairman Mark Liu said an earnings briefing, adding that “Neither can we predict for next year how the sudden demand will continue or flatten out.”

Liu revealed another headwind for his company at the conference call. He said TSMC’s first fab plant in Arizona has to be delayed from late 2024 to 2025 owing to skilled labor shortage. “While we are working to improve the situation, including sending experienced technicians from Taiwan to train the local skilled workers for a short period of time, we expect the production schedule of N4 process technology to be pushed out to 2025,” Liu told analysts. In addition to a lacked of skilled workers, Liu noted another challenge his company faced is that the labor costs in U.S. are higher than those in Taiwan. TSMC originally anticipated the U.S. project to start initial test production in September this year, and pushed back the production plan to next February or March in late last month, admitting the construction work was significantly behind its planned schedule. 

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