TSMC executives angered investors with several statements at yesterday’s quarterly event. As the company is the largest contract manufacturer of semiconductor components, its assessment of the current state of the market can have a major impact on investor sentiment. As a result, shares of TSMC itself fell 3.8% in the Taiwanese stock market, its depository receipts fell about 5% in price in the US stock market, and many securities of other companies in the industry also fell in price.
Recall what exactly TSMC’s management could disappoint investors. First, it said sales will fall 10% this year, twice what it expected in April. This is the first time in 14 years that the company’s revenue has fallen compared to last year.
Secondly, it became known that the implementation of the Arizona business development project has been delayed. The company lacks skilled workers to meet its original schedule, delaying the start of chip production at the state’s first N4 facility, which is under construction, until 2025.
Third, TSMC executives admitted that the recovery in demand is slower than planned. Product inventories will return to normal at best early next year. Demand for smartphones and PC components is still rather weak, which affects TSMC’s orders in both the mature and advanced lithography segments.
Fourth, as TSMC officials explained, the short-term increase in demand for components for artificial intelligence systems cannot offset the overall negative trends in the global economy. Even next year, the momentum in AI sales may not be as strong as many expect, according to the company’s executives. At the same time, TSMC expects to achieve a dominant position in the service market for the manufacture of components for AI systems in the long term.
Today, such components together account for just 6% of company revenue, but if demand grows at an average rate of 50% per year over the next five years, the share of core revenue will begin to measure in the double-digit percentage range. Among other things, this will allow the company to maintain a compound annual growth rate of total sales at the level of 15-20% in dollar terms in the coming years. This was reported by TSMC executives at yesterday’s reporting event.
One way or another, the current state of the industry as described by TSMC’s management has led to a correction in the core sector equity market. Stocks of lithography equipment suppliers such as ASML and Tokyo Electron fell in price. Shares in memory makers Samsung Electronics and SK Hynix also fell, and in the US they lost around 3% of shares in NVIDIA and Intel.
How explain Analysts Needham, this is the third reduction in revenue guidance for TSMC since the beginning of the market cycle. She believes TSMC’s business will do well in 2024 as the company and its customers come to terms with excess storage by the end of the year. Goldman Sachs experts take a similar view. They also believe that investors were not particularly hoping for the Arizona project’s deadlines to be met, so this factor had a minimal impact on their sentiment.