(Bloomberg) — A Taiwanese semiconductor maker has slashed its 2023 revenue forecast, sending a warning to investors that the global recession in electronics could continue for some time despite a boom in artificial intelligence development.
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Major chipmaker Apple Inc. And Nvidia Corp. is down 10% in sales this year, versus previous guidance for a single-digit decline. It also forecast sales of $16.7 billion to $17.5 billion this quarter, weaker than expected. The company reaffirmed that capital expenditures for 2023 should come in toward the lower end of the previously projected range of $32 billion to $36 billion.
TSMC delivered the forecast after it posted its first quarterly profit decline in four years, underlining the extent of the global decline in demand for smartphones and PCs. It announced a 23% drop in net income to NT$181.8 billion ($5.85 billion). Executives said Thursday that they are also delaying the expected start of production from its new Arizona plant until 2025, in part because of a shortage of skilled workers.
However, this decline was less than feared. The company is among the first to benefit from efforts from the United States to China to develop AI platforms. The Taiwanese company, which makes Nvidia chips deemed most effective at training AI like ChatGPT, has gained about 30% in value this year as investors look for ways to bet on the emerging technology.
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What Bloomberg Intelligence says
Despite reporting a consensus-beating second-quarter sales of NT$480.8 billion and a rapid rise in manufacturing orders related to AI chips, TSMC’s profit trajectory in the second half could be set back significantly by a slowdown in the smartphone sector. After adjusting for exchange rate volatility, second quarter revenue was at the midpoint of the guidance range and 10% lower than a year earlier.
Charles Shum, analyst
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Immediately, the iPhone chip maker is struggling to maintain profit margins and growth in its consumer and smartphone businesses, which have contracted along with the post-Covid global economic slowdown. TSMC reported a 10% drop in second-quarter revenue last week, which is slightly less than feared.
Samsung Electronics this month reported its worst quarterly revenue drop since at least 2009, raising uncertainty about when a year-long slump in electronics demand will end. Global smartphone shipments fell 11% in the April-June period, the sixth consecutive quarterly decline, according to estimates from research firm Canalys.
But the backlog of unsold phones is shrinking. And this week, ASML Holding NV revealed orders rose in the second quarter after increased demand for chip making machines.
“The smartphone market is sending early signs of recovery,” said Lu Xuanqiu, an analyst at Canalys. “Smartphone inventory is starting to bubble up as smartphone vendors prioritize reducing inventory of older models to make room for new launches.”
Investors are betting that TSMC will become a heavyweight in the global race to develop the next generation of artificial intelligence. Nvidia chips are core customers essential to ChatGPT, autonomous driving, and a new generation of AI products. The US company’s valuation briefly topped $1 trillion this year thanks to Wall Street’s obsession with generative AI, boosting the fortunes of TSMC and other electronics companies that provide the infrastructure needed to train AI models.
Other investors — including Warren Buffett — worry that increased Chinese aggression could jeopardize Taiwan’s precarious status and thus TSMC’s prospects. It still maintains its most advanced manufacturing at home, despite US warnings that Beijing might decide to try to reclaim an island it considers its own.
To ease customer concerns about geopolitical uncertainties in the Taiwan Strait, TSMC has been diversifying its manufacturing footprint over the past two years. It is investing $40 billion to construct two prefabricated towers in Arizona and to build an $8.6 billion facility in Japan with financial support from the government. The company is still in discussions with Tokyo about subsidies for a second facility, which may be located alongside its existing plant in Kumamoto.
– With help from Gao Yuan.
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