TSMC's Bold Move: Supplier Delivery Postponement
In recent reports, Taiwan Semiconductor Manufacturing Company (TSMC) has conveyed to its primary suppliers, which notably include the prominent Dutch semiconductor equipment manufacturer ASML, its decision to defer the delivery of cutting-edge chip manufacturing equipment. This move comes against the backdrop of mounting concerns regarding the future outlook of customer demand.
This development has had a notable impact on financial markets, with TSMC's American Depositary Receipts (ADR) witnessing a decline exceeding 0.8% after the U.S. stock market's opening bell. Additionally, Applied Materials experienced a decline of more than 3%, while Lam Research dipped by 2.9%.
Across the Atlantic, European semiconductor equipment stocks also faced a considerable downturn on the 15th of the month. Notably, ASML saw an intraday drop of 3.2%, emerging as the poorest performer within the STOXX50 index. Furthermore, ASM International encountered a substantial decline of 6.2%, Dutch firm BE Semiconductor briefly dropped by 2.87%, and German semiconductor equipment manufacturer Aixtron experienced a temporary dip of 1.38%.
Insiders have suggested that TSMC's decision to postpone these orders is primarily driven by a strategic emphasis on cost management. This decision also reflects the company's growing prudence regarding its assessment of future demand trends. However, sources close to the matter have indicated that these supply delays are likely to be a short-term phenomenon, affecting companies like ASML, whose photolithography machines are integral to advanced chip production.
TSMC, in response to market developments, has reiterated its commitment to refrain from commenting on market sentiments, preferring instead to adhere to the information provided during its previous conference call. Presently, TSMC's capital expenditure projection for the year 2023 is estimated to fall within the range of $32 billion to $36 billion. This allocation will see approximately 70% to 80% of the budget allocated to advanced manufacturing processes, with an additional 10% to 20% designated for specialty processes, and the remaining portion allocated to advanced packaging and mask production. Notably, this overall budget is marginally less than the $36.3 billion invested in the previous fiscal year.
With the ongoing expansion of production capabilities for N3 technology, depreciation expenses are expected to rise by 25% compared to the previous year. Market experts posit that the deferral of high-end equipment orders may serve to alleviate the pressures associated with depreciation, while also contributing to a more comprehensive cost management strategy. Additionally, it cannot be discounted that this decision may be geared towards expediting the expansion of advanced packaging capabilities in later stages, thereby temporarily delaying the delivery of front-end process equipment.
Market observers posit that the most plausible scenario is one where market conditions continue to remain characterized by uncertainty. This uncertainty is attributed to global economic risks and a slower-than-anticipated recovery in China, both of which have exerted an influence on end-consumer demand. TSMC, in line with this assessment, anticipates that customer inventory management will remain conservative through the fourth quarter. Future observations will be made to assess the potential impact on TSMC's global expansion initiatives, encompassing investments in the United States, Japan, and forthcoming endeavors in Europe.
However, TSMC remains unwavering in its pursuit of advancements in cutting-edge manufacturing processes. This commitment was underscored by its recent announcement on September 12th, wherein the company revealed its acquisition of approximately 10% of IMS Nanofabrication from Intel, with a transaction value not exceeding $4.328 billion. This strategic move primarily aims to bolster TSMC's vertical integration capabilities and ensure a seamless transition from the current 3nm FinFET technology to 2nm GAA technology.
Peter Wennink, CEO of ASML, mentioned in a recent interview that certain orders for high-end process tools have been postponed, refraining from disclosing specific customer identities and attributing the delay to a "short-term management" issue.
