TSMC Trims Capital Spending Forecast Amid Chip Headwinds

TOKYO—Taiwan Semiconductor Manufacturing Co. cut its capital expenditure forecast by about 10% this year, even as the company reported a record quarterly profit increase and responded to headwinds including slowing global chip demand and rising costs.

The world’s largest contract chipmaker on Thursday reported an 80% increase in net income for the July-September quarter, mainly on strong sales of its cutting-edge chips used in smartphones and other devices.

However, management pointed to a likely downturn across the semiconductor industry in 2023.” TSMC TSM 1.04%

is not immune either,” Chief Executive CC Wei said during Thursday’s conference call.

TSMC lowered its investment guidance to $36 billion for 2022, down from a previous target of at least $40 billion set three months ago. TSMC executives said the spending cuts resulted from the adjustment of capacity expansion plans due to factors such as weakening global demand for semiconductors and rising costs due to inflation.

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Signs of a slowdown in the semiconductor industry follow a period of rising sales during the pandemic, which has created additional demand for PCs, appliances and data servers. PC sales have plummeted in recent months. Mr. Wei said some of the company’s capacity would not be as fully utilized in the October-December quarter as in the same periods in the previous three years.

But he also pointed to continued demand from sectors such as autos and high-performance computing, which process data and computation at high speeds, to support the company’s prospects for continued growth over the next few years.

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Other semiconductor companies face difficult conditions. Samsung electronics co

, the world’s top-selling chipmaker, last week forecast third-quarter operating profit to fall nearly a third year over year. modern micro devices inc

Last week, the company lowered its revenue guidance for the third quarter after issuing a muted outlook. According to AMD, the PC market has weakened significantly in recent months.

TSMC and its competitors are also caught in the crossfire of Washington’s actions targeting almost every aspect of China’s growing semiconductor industry, which the US sees as an arena of increasing strategic competition. TSMC shares fell to a nearly two-year low this week as investors weighed the impact of widening U.S. restrictions on exports of high-tech chips and the tools needed to make them to China.

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Last Friday, the US introduced strict export controls, with requests for exemptions being treated on a case-by-case basis. TSMC, along with Intel corp

and South Korea’s Samsung and SK Hynix inc,

secured exceptions to keep their China-based facilities running.

Mr Wei said the new regulations aim to deliver supplies for very high-value applications such as artificial intelligence and supercomputers. “As such, our initial assessment is that the impact on TSMC is limited and manageable,” he said.

When asked about the long-term strategy with China, Mr Wei said the company will continue to serve “all customers around the world” on condition of “complying with all rules and regulations.”

A global chip shortage is impacting how quickly we can drive a car out of a parking lot or buy a new laptop. WSJ visits a manufacturing facility in Singapore to see the complex process of making chips and see how a manufacturer is trying to overcome the shortage. Photo: Edwin Cheng for The Wall Street Journal

The majority of TSMC’s revenue came from customers in North America and accounted for 72% of total revenue in the third quarter, up from 64% in the second quarter, while revenue from China accounted for 8%, up from 13% in the previous quarter.

TSMC said net profit for the quarter ended Sept. 30 rose to NT$280.87 billion, or US$8.83 billion, from NT$156.26 billion a year earlier. That beat the estimate of NT$267.31 billion from a survey of analysts by S&P Global Market Intelligence.

Revenue for the third quarter rose 48% year-on-year to NT$613.14 billion. The company’s operating margin improved 9.4 percentage points year-on-year to 50.6%.

Quarterly revenue from the smartphone sector increased 25% sequentially and accounted for 41% of TSMC’s third-quarter revenue, while the high-performance computing sector accounted for 39%.

TSMC said revenue from customers in North America accounted for 72% of the third quarter total, up from 64% in the second quarter, while revenue from China accounted for 8%, up from 13% in the previous quarter.

write to Yang Jie at [email protected] and Kosaku Narioka at [email protected]

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