TSMC Said to Delay High-End Chip Equipment Shipment Due to Demand Concern

TSMC’s decision to delay reflects the company's increasing caution about the outlook for demand.

BEIJING, September 18 (TMTPost)— Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s leading chip maker for other companies, still has to struggle with the macroeconomic headwinds.

TSMC told major suppliers that it was delaying deliveries of high-end chipmaking equipment, Reuters reported, quoting sources familiar with the matter. The manufacturer became more and more nervous about customer demand, so it instructed suppliers to delay delivery to control costs, according to the report. TSMC later said it doesn’t comment on any market rumor.

While sources said suppliers at the moment expected the delay to be short-run, shares of TSMC suppliers in the West slumped last Friday. Netherland-listed shares of ASML, ASMI and BE Semiconductor Industries fell 3.5%, 6.6% and 4.8%, respectively.  Shares of Nvidia, TSMC’s largest customer at artificial intelligence (AI) sector, shed 3.7%, and the semiconductor industry index the PHLX Semiconductor Index closed down 3%. Shares of chip-equipment suppliers KLA Corp and Lam Research Corp. dropped more than 5%. U.S.-listed shares of TSMC declined 2.4%.

TSMC’s decision to delay reflects the company’s increasing caution about the outlook for demand, Reuters’ sources said. The world’s leading semiconductor foundry has suggested its caution months earlier.

In July, 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 recorded 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.

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.

Analysts believe that TSMC’s less-than-estimated slide in both the top and bottom line in the June quarter was mainly driven by the AI boom. 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.

Surprisingly, TSMC lowered its 2023 revenue forecast when releasing the second quarter results in July. The company 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.

TSMC CEO C.C. Wei said in July that his company is unable to fulfill customer demand buoyed by AI boom. TSMC Chairman Mark Liu recently warned that lacking of advanced packaging capacity used to stitch the silicon together is holding up production. Demand for chip on wafer on substrate (CoWoS) package for advanced chips has tripled in the past year, Liu noted. Therefore, TSMC fails to meet 100% of customers’ CoWoS needs at present, but will try its best to meet about 80 %, Liu said. CoWoS is used in some of the most advanced chips on the market today, and almost all the applicable high-bandwidth memory (HBM) which is ideal for AI workloads relies on the packaging technology.

Liu expects insufficient CoWoS capacity is a temporary bottleneck, and it will take about one and a half year to ease the shortage as TSMC expands capacity. The supply laggard suggests shortage of Nvidia’s data center GPUs could last through 2025.

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