(Bloomberg) — Taiwan Semiconductor Manufacturing Co. shares had their biggest jump in three months after the company slashed its 2022 capital spending target by roughly 10% and reported better-than-expected earnings.
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TSMC said it expects to spend about $36 billion in 2022 on capital equipment, down from at least $40 billion previously. The company, which reported better-than-estimated third-quarter net income of NT$280.9 billion ($8.8 billion), is projecting revenue of $19.9 billion to $20.7 billion in the December quarter, though that assumes certain US dollar expectations at a time Asian currencies have weakened.
Asia’s semiconductor sector as a whole rose following a rebound in American peers after hot US inflation data. The Bloomberg Asia Pacific Semiconductors Index gained as much as 3.6% and the Philadelphia Semiconductor Index closed 2.9% higher. TSMC’s stock rose 4.3% in Taipei on Friday.
“The time to start buying TSMC stock for absolute upside has now arrived,” JPMorgan analysts said after TSMC’s earnings. Shares had tanked earlier in the week, taking its market capitalization to about $320 billion from more than $550 billion in January.
TSMC and its peers are grappling with Washington’s sweeping restrictions on doing business with China, which are sending shock waves through the global semiconductor industry. Applied Materials Inc., a leading producer of chip-making equipment, slashed its forecast for the fourth quarter, while Intel Corp. is said to be preparing to fire thousands. Shares in European gear maker ASML Holding NV, whose top customer is TSMC, fell as much as 3% Thursday.
The moves unveiled last week are the Biden administration’s most aggressive yet as it tries to stop China from developing technological capabilities it sees as a threat. The actions, which have incensed Beijing, threaten to disrupt a global economy already dealing with a potential global recession, soaring inflation and lingering supply snarls.
“The company’s 10% cut in full-year capital spending target implies prolonged weakness in smartphone and PC chip demand,” Bloomberg Intelligence analyst Charles Shum said.
Executives said that they won a license from the US to continue operating and building out their 16 nanometer and 28 nanometer lines at Nanjing in China, joining companies from SK Hynix Inc. to Samsung Electronics Co. in securing narrow exemptions to the chip curbs from Washington.
The grants allow Asia’s three largest chipmakers to maintain their existing plants and operations in the world’s biggest semiconductor market, for instance by buying, importing and upgrading American tools. They may also be allowed to expand existing facilities covered by the licenses — which in TSMC’s case involves more mature nodes that are several generations behind state of-the-art. It’s unclear, however, if foreign firms will be allowed to move up the technology ladder, or have American employees working on the lines in China.
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The Biden administration measures limit the ability of companies that use US technology to sell products to China. They include restrictions on the export of some types of chips used in artificial intelligence and supercomputing, and also tighter rules on the sale of semiconductor equipment to any Chinese company.
The restrictions make it more difficult for chipmakers to move their inventories and hit TSMC more severely than previous actions by the US, Fubon Research analysts led by Sherman Shang said in a note this week. The curbs mean about 5%-8% of TSMC’s total revenue will likely be restricted, they said. Bloomberg Intelligence estimates TSMC could lose more than 10% of its annual sales because of the restrictions.
It’s “too early to provide a specific number, however the inventory correction will likely see its biggest impact sometime in the first half of 2023,” Chief Executive Officer C. C. Wei told analysts on a conference call. The impact of the US curbs will be manageable, he said.
Still, Taiwan’s largest company is betting on its massive size and industry-leading technology to navigate its biggest challenges in years. Hsinchu, Taiwan-based TSMC is the world’s largest contract chipmaker, producing for the likes of Qualcomm Inc., Apple Inc. and Nvidia Corp., all of which sell a significant portion of their products into the Chinese market.
On Thursday, executives reaffirmed their long-term targets for revenue and declared 2023 a year of growth. TSMC also pledged to continue expanding around the globe as needed.
“TSMC’s guidance of at least 43% year-over-year sales growth and 59.5% gross margin is above consensus estimates, and indicate very mild immediate impact from the new US restrictions,” Shum said.
The outlook for the electronics industry had begun to darken even before the upheaval engendered by Biden’s curbs.
Macroeconomic shocks have suppressed consumer demand and business spending, while unsold inventory among PC vendors built up. Third-quarter shipments of desktop and laptop computers slumped 15%, according to IDC data, and chip companies like Advanced Micro Devices Inc. have said they were surprised by the speed and sharpness of the downturn in demand. Memory makers Micron Technology Inc. and Kioxia Holdings Corp. have announced cutbacks in output of as much as 30% to try and stabilize prices.
TSMC may not be able to rely on sustained demand for products of Apple, its main customer, whose growth has benefited the Taiwanese manufacturer for years.
While the California company has launched new types of chips to boost the performance of its devices, it has recently backed off plans to increase production of its new iPhones, raising further questions about underlying electronics demand.
(Updates with shares)
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