AMD, Intel, and Nvidia Reportedly Slash Orders with TSMC
The world’s number one foundry, TSMC, was largely unaffected by the tech market’s softening in Q2 and Q3, but even the world’s largest contract chip maker seems to have had a party. TSMC’s major customers have reportedly begun amending their orders with the company, impacting the foundry’s performance from the fourth quarter of 2022. Digi Times.
According to reports, TSMC’s utilization will drop significantly in the first quarter of 2023 as virtually all TSMC clients are hit by a recession and have to cut orders. For example, the utilization rate of TSMC’s N7 capable lines (7nm, 6nm class technologies), and even TSMC’s N5/N4 capable lines will be underutilized, but these are the leading edge products such as Apple’s smartphone SoCs. Not surprising as it is used in manufacturing. Advanced handsets usually go down in the first half of the year. Even more worrisome is that even the N28 capable fabs at full capacity have been underutilized since the chip shortage began in early 2021.
With China’s economic slowdown and COVID-19 lockdown, economic recession in many European countries, and reduced demand for many products in the United States, major computer hardware, PC, and smartphone manufacturers are Reduced procurement of new chips from companies. AMD, Intel, MediaTek, and Nvidia. As a result, fabless chip designers have reportedly been forced to slash orders from TSMC.
The order cuts will take effect in the fourth quarter of 2022, adding to TSMC’s inventory, but it’s unclear how the drastic reduction in orders will affect the company’s earnings this quarter. TSMC expects Q1 2023 revenue to decline 15% QoQ. In contrast, TSMC’s Q1 2022 earnings outperformed their Q4 2021 earnings by 12.1%.
Since fabless chip designers are obliged to source a fixed number of wafers in a given quarter, it is not trivial to significantly reduce their orders to their contract manufacturers. Nevertheless, TSMC is willing to accept compensation (to hold wafers before they are ready to buy chips from AMD, Intel, Nvidia, etc.) and even renegotiate deals on long-term supply agreements (i.e. , the number of wafers the company is committed to purchase in the future). However, such measures will not make life easier for him at TSMC in Q4 2022 or Q2 2023.
Market observers are generally optimistic about demand for advanced chips returning to normal in 2023. As a result, TSMC is expected to record revenue growth again this year, but the increase in sales he may not be as impressive as in the 2021-2022 period.