TSMC is bracing for a nearly 15% sequential decline in first-quarter 2023 revenue, driven by falling capacity utilization rates at its fabs and wafer banks reaching new highs, according to industry sources.
Sources pointed out that the 6% increase in foundry costs in 2023 will help keep TSMC's revenue from sliding even further.
TSMC CEO CC Wei previously stated that semiconductor inventories would peak in third-quarter 2022 and begin to correct in the fourth quarter. He expects capacity utilization rates will not improve until the second half of 2023.
Many major manufacturers expect inventories will finish clearing in the second quarter of 2023, with demand expected to pick up due to new products.
TSMC is more conservative with its forecast, not expecting semiconductor inventory to be cleared until mid-2023.
Although China has significantly eased its COVID policies, sources say it will take more than a few quarters to see China's economy and demand recover. Demand in Europe and the US has also been weak, leading to more conservative outlooks from both the upstream and downstream supply chain.
At present, sources believe supply and demand will not improve until fourth-quarter 2023 or 2024.
Semiconductor players noted that many IC design houses began revising orders in the third quarter due to the rapid decline in demand. Major order cuts were initially aimed at tier-2 foundries, but by the fourth quarter, even TSMC was seeing adjustments to 2023 orders.
TSMC is expected to see its performance in 2023 reflect high inventories and low market demand as a result of its top 10 customers cutting orders, sources said.
TSMC's overall utilization rates in the first quarter of 2023 are expected to see an obvious drop. Rates for 7nm and 6nm are expected to fall to 50%. Rates for 5nm, 4nm, and 28nm, which were fully loaded in third-quarter 2022, are also expected to significantly loosen.
TSMC has negotiated conditional agreements with customers due to order cuts, order delays, and contract breaches. In addition to accepting compensation, TSMC is also willing to accept contract renewals and long-term commitments from major customers.
Industry sources estimate that the semiconductor industry will bottom out in first-quarter 2023 and will remain low in the second quarter, mainly attributed to slow consumer electronics inventory clearances and weaker-than-expected demand growth in the network, server, and automotive sectors.
TSMC expects its annual performance will maintain growth in 2023, driven by new product launches from major manufacturers such as Apple and an increase in orders for 7nm and below. However, reaching its target 15-20% compound annual growth rate will be a challenge.
TSMC recently announced that its fab 18 at the Southern Taiwan Science Park (STSP) will officially begin mass production using its 3nm process on December 29.
However, industry sources pointed out that TSMC has fallen behind on the progress of N3 technology, noting that the production scale is still small. A larger production scale is not expected until mid-2023 when it introduces the N3E generation, whose main customer will be Apple.
Article translated by Eifeh Strom
