TSMC Warns Rare Quarterly Revenue Drop, Cuts Spending; What This Means for Tech Sector

Taiwanese chipmaking giant TSMC shocked the technology sector on Thursday, saying it expects first quarter revenue to drop by at least 5 percent. This compares with a record-beating 78 percent rise in profits the global chip leader posted in the fourth quarter.

TSMC also said it will reduce annual capital expenditure as well, as it sees a shrinking of tech sector demand for its advanced chips. TSMC specifically sees a weakening of demand from major client Apple in the near term.

Samsung TSMC

Near-Term Uncertainties

According to Reuters, TSMC said its capital expenditure in 2023 would fall to $32-36 billion from $36.3 billion in 2022. "Given the near-term uncertainties, we continue to manage our business prudently and tighten up our capital spending where appropriate ... Our disciplined capex and capacity planning remain based on the long-term market demand profile," Chief Financial Officer Wendell Huang said.

This massive scale-back stands in sharp contrast to the mood that prevailed in January 2022, when the company said it will invest up to $44 billion during the year to expand chip manufacturing capacity, as the world faces acute chip shortage amid supply chain constraints. The company said it expected capital spending to be between $40 and $44 billion in 2022, up from a previous record of $30 billion in 2021.

Global Economic Conditions

Nikkei Asia also added that TSMC's new plans put "the chipmaker on track to meet its plan of investing $100 billion over the three years till 2023".

However, the sustained sluggishness in the global economy due to multiple factors like the Ukraine war, China's covid scenario and the general economic setbacks from the pandemic, have dealt a hard blow to the tech sector.

Semiconductor Wikimedia Commons

Now, TSMC, which is Asia's most-valuable listed firm, sees its first-half revenue posting nearly a high single-digit percent decline, according to reports. First-quarter revenue is expected in a range of $16.7 billion to $17.5 billion, whereas it was $17.57 billion last year.

The chip giant's dull view of the market reflects the sharp downturn in the global technology sector, which was triggered by falling purchasing power the world across owing to record-high inflation.

However, TSMC believes that things will turn around in the second half of the year. "We forecast the semiconductor cycle to bottom sometime in first half and see a recovery in second half 2023," TSMC CEO C.C. Wei said, according to Reuters.