TSMC Reportedly Facing Downsized Orders from Major Clients Amidst Economic Downturn

Even though TSMC is the biggest contract chip producer in the world, the party seems to be ended even though it was practically immune to the deteriorating high-tech industry in Q2 and Q3 of 2022. Leading clients of TSMC started to revise their orders to the business, which had an impact on the foundry’s performance beginning in the fourth quarter of 2022, according to DigiTimes.

The analysis predicts that almost all of TSMC’s customers will face a slump and have to reduce their orders, resulting in a sharp fall in TSMC’s utilization in Q1 2023. For instance, by the beginning of 2023, the utilization rate of TSMC’s N7-capable lines (7nm and 6 nm-class technologies) would drop to around 50%.

Even TSMC’s N5/N4-capable lines won’t be used to their full potential, but this shouldn’t be surprising given that they are used to produce cutting-edge goods like Apple’s smartphone SoCs and that demand for high-end devices is typically lower in the first half of the year. Even N28-capable fabs, which have been completely booked since the chip shortfall started in early 2021, would be underutilized, which is even more concerning.

Slowed Demand Has Forced Major Clients to Reduce Their Orders

Prominent manufacturers of computer gear, PCs, and smartphones curtailed their purchases of new CPUs from firms like AMD, Intel, MediaTek, and NVIDIA as a result of the weakening economy in China and its COVID lockdowns, a slump in several European nations, and decreasing demand for many items in the United States. Therefore, it was necessary for the fabless chip designers to reduce their orders to TSMC

It is unknown how the considerably lowered orders would influence the company’s revenue this quarter, but the order reduction will take effect in Q4 2022, increasing TSMC’s inventory. Meanwhile, DigiTimes predicts a 15% quarter-over-quarter decline in TSMC’s Q1 2023 sales. In comparison, TSMC saw a 12.1% increase in Q1 2022 revenue over Q4 2021.

TSMC’s 3nm architecture has grasped the attention of several corporate buyers | Image: TSMC

Cutting orders to a contract manufacturer is complex since fabless chip designers are required to buy a certain amount of wafers from specific suppliers. However, it is said that TSMC is open to accepting payment and even renegotiating agreements on long-term supply contracts in return.

In Q4 2022 or Q2 2023, though, such actions won’t make things any simpler for TSMC. The majority of industry experts continue to be upbeat about the market for advanced chips returning to normal in 2023. Consequently, TSMC is still anticipated to report revenue growth for the year, albeit the sales gain could not be as notable as the 2021–2022 timeframe.

ABOUT THE AUTHOR

Muhammad Zuhair


Passionate about technology and gaming content, Zuhair focuses on analysing information and then presenting it to the audience.
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