TSMC Considers Cutting Capital Spending by Over 12% Due to Industry Headwinds and Delays in China Taiwan Plant Construction

According to a report from the Economic Daily News, it has been rumored in the industry that Taiwan Semiconductor Manufacturing Company (TSMC) is considering reducing its capital expenditures for this year due to the delayed construction schedule of its new plant in Taiwan, as well as the less than expected recovery of the semiconductor market. The most conservative estimate suggests a possible reduction to $28 billion, which represents a decrease of more than 12% compared to last year's level of $32 billion.

In January of this year, TSMC had forecasted capital expenditures for the year to be between $32 billion and $36 billion, which is lower than the $36.3 billion spent in 2022, and marks the first annual decline in capital expenditures in nearly eight years. TSMC had emphasized at that time that the company will continue to invest in research and development, with an estimated 20% increase in R&D expenses this year.

Due to the sustained weak demand in the terminal markets, such as smartphones, US-based foreign investment has become skeptical about TSMC's orders for 5/7-nanometer technology, and have significantly reduced their estimated utilization rates for the second half of the year. The 5-nanometer utilization rate has been adjusted from the previous estimate of 90-92% to 75%, while the 7-nanometer utilization rate is expected to be around 45-50% and 55% for the first and second halves of the year, respectively. This is likely the reason for TSMC's adjustment to its capital expenditures.

Recently, silicon wafer plants have faced significant reductions in production from memory customers, which has led to a slowdown in shipping momentum and pressure to delay delivery schedules. If TSMC reduces its capital expenditures, it may also reduce its purchase of silicon wafers, which would put further pressure on silicon wafer plants.

Regarding the short-term market situation, GlobalWafers, the third-largest and largest silicon wafer manufacturer in Taiwan, previously stated that operating pressures in the second quarter may still be greater than in the first quarter due to requests from customers to delay delivery, in order to make the second-quarter performance look better.

GlobalWafers believes that due to the uncertain risk in the overall economic environment, the market has not seen a significant improvement yet. Even though there have been some sporadic good news, the atmosphere among customers for the second half of the year remains cautious.

As for TSMC's performance, the revenue from high-performance computing accounted for as much as 41% last year, surpassing smartphones' 39%, which was the largest application. In terms of revenue growth, the automotive electronics category had the highest growth rate of 74%, followed by high-performance computing at 59%.

In terms of process type, TSMC's revenue from 5-nanometer technology accounted for about 26% last year, while the 7-nanometer technology accounted for about 27%, indicating a steady transition of customer groups to the 5-nanometer family of applications.

Regarding the 3-nanometer technology, TSMC began volume production in the fourth quarter of last year, as planned. TrendForce previously analyzed that TSMC's expansion plans are adjusted according to customer demand, and estimated that the initial expansion of 3-nanometer technology was reduced due to design verification issues with Intel's Meteor Lake product line.