TSMC postpones equipment delivery time, are all major equipment manufacturers scared?

Concerned about slowing chip demand, Taiwan Semiconductor Manufacturing Co., the world's largest third-party semiconductor maker, has told equipment suppliers to postpone some deliveries, mainly to control costs, according to a new report released on Friday.

TSMC shares fell 1.1% to $90.47 in early trading on Friday following the release of the report. Shares of major chip equipment makers - including Applied Materials, KLA and ASML - were down more than 3%.

TSMC did not immediately respond to a request for comment. Last week, the company said August revenue fell 13.5% from last year and increased 6.2% month-on-month.

Reuters reported on Friday that TSMC had informed major chip equipment suppliers to postpone some deliveries, citing people familiar with the matter. The company is "increasingly strained" by demand from its customers, the report said.

TSMC dominates the high-end chip market. It makes Apple's main in-house processors, Qualcomm's mobile chipsets and AMD-made processors. According to TrendForce, TSMC holds about 60% of the market share in the third-party chip manufacturing business, followed by Samsung with 12%.

In July, TSMC lowered its full-year financial guidance and expected revenue to drop 10% year-on-year. Management said at the time that demand outside the strong artificial intelligence chip market had deteriorated more than expected, while China's recovery was also weaker than expected.

The third quarter of 2023 will end, and then enter the fourth quarter, which is the peak period of price negotiation between TSMC, the leader in wafer foundry, and its suppliers. Relevant suppliers pointed out that it is expected that the overall semiconductor market situation in 2024 will not be completely clear, and TSMC will continue to carry out price reductions in 2022, that is, it will adopt slight price cuts or stop them.

Suppliers said that in principle, TSMC will adopt slight or no price bargaining for suppliers in 2022, which will relieve a lot of pressure on suppliers who are facing inflation and causing raw material prices to rise sharply. In 2024, the market expects that the recovery of the semiconductor industry will still be unclear, procurement volume will not increase, and suppliers will maintain the same price as in 2022, with slight or no price cuts.

Foreign media have reported that market analysts said that TSMC has encountered trouble in building wafer fabs recently and has lowered its full-year revenue forecast twice. There are even reports that TSMC may lower its full-year revenue forecast for the third time. TSMC denies it and sticks to its financial guidance. However, due to strong demand from Apple and NVIDIA, TSMC’s fourth-quarter revenue may grow by 7% to 9%.

Analyst reports pointed out that TSMC's fourth-quarter revenue growth may reach 7% to 9%, mainly due to Apple's launch of the iPhone 15 series in September, with shipments reaching 86 million units, and NVIDIA's surge in market demand for data center chips. The orders brought TSMC's third-quarter revenue to US$16.5 billion to US$17.5 billion, and fourth-quarter revenue will increase to US$18.6 billion, with a median quarterly growth of 8%.

While the outlook for the fourth quarter is positive, 2024 may be different as U.S. consumers and businesses struggle to shake off high inflation and grapple with whether to raise interest rates and a possible recession, as well as a weakening economy in China, two markets that account for the majority of TSMC's revenue. This creates high uncertainty and affects TSMC’s orders. The market expects that TSMC will be more conservative in purchasing under uncertainty, the quantity will not increase significantly, and the bargaining range will remain the same.

Although TSMC treats suppliers slightly or does not bargain, it still raises prices for customers. According to previous media reports, IC design manufacturers said that TSMC plans to increase its advanced process quotations by 3% to 6% starting from January 2023. Depending on the process, order size and closeness of cooperation, the increase will vary among manufacturers, and TSMC also We have successively communicated with many customers such as Apple, MediaTek, AMD, Huida, Qualcomm and Broadcom regarding price increases.

IC design manufacturers pointed out that the main reason is that once the price is reduced, it is difficult to recover. TSMC is facing multiple impacts such as the cost of continued overseas expansion and rising electricity costs. To continue to maintain its long-term gross profit margin target of 53%, it can only raise prices for customers. However, TSMC declined to comment on the price increase.