Taiwan Semiconductor Manufacturing Company has raised its revenue outlook despite warning of a cyclical downturn in the chip industry and pressures from soaring inflation.
The world’s largest contract chipmaker on Thursday forecast $19.8 to $20.6bn in revenue in the third quarter, a 35.7 per cent increase compared with last year. It increased its full-year growth target to about 35 per cent, up from just under 30 per cent previously.
The bullish outlook comes even as TSMC highlighted rising costs, including for electricity and manufacturing tools, which it said could affect its profitability. It warned that many semiconductor vendors are reducing inventories.
TSMC reported a 76.4 per cent increase in net profit to NT$237.03bn (US$7.92bn) for the second quarter, the fastest quarterly earnings growth in two years, as a favourable exchange rate and cost savings pushed its gross margin to a record 59 per cent.
“We do have mid-thirties growth this year, but we also expect our customers to start to take action to reduce their inventory levels — the inventory correction will last at least into first half of 2023,” TSMC’s chief executive CC Wei told investors on an earnings call.
“Despite that, we expect our capacity to remain tight and our business to remain more resilient than the industry overall.”
TSMC executives expect that the company will continue growing even in 2023, when the inventory correction is expected to bite. “Because TSMC’s position is much stronger today, we think 2023, even though the inventory correction [will continue], is still a growth year for TSMC,” Wei said.
TSMC’s confidence is partly based on increasing sales of products including data centres and internet applications. This has made the company less dependent on traditional electronics such as smartphones.
The company is also shielded from a global downturn because it controls more than half of the global market for made-to-order chips and commands the world’s most advanced semiconductor production technology.
TSMC shares have fallen more than 20 per cent since the beginning of the year as investors priced in expectations that the pandemic boom for electronics is coming to an end. At the same time, Covid-19 supply chain disruptions and the war in Ukraine are weighing on the global economy.
The company said any downturn in the semiconductor market was likely to be limited.
“After two years of pandemic-driven stay-at-home demand, it will take a few quarters to rebalance inventory to a healthier level, and we have prepared ourselves for difficult scenarios if it is necessary,” Wei said.
Executives added that the strength of demand for high-performance computing chips, used in products such as data centres, made a deep slump unlikely.
“Our base case is more of a typical downcycle — a few quarters in 2023 — not a big downturn like in 2008 or so,” said Wendell Huang, chief financial officer.
