newarticlenews

Latest and Fastest news for you

Education

TSMC’s $72 Billion Rout Has Market Bracing for More

[ad_1]

(Bloomberg) — Taiwan Semiconductor Manufacturing Co.’s stock has lost more value than any other in Asia since mid-June as investors brace for prolonged weakness in the chip sector. The rout may not be over.

Most Read from Bloomberg

Since its June high, Taiwan-based TSMC shares have fallen 10%, erasing $72 billion from its market cap due to worries about the macro environment and soft global consumer electronics demand. A continued rise in the volatility skew in recent months as traders bid up bearish contracts is indicating a further drop in TSMC’s stock.

Shares of the world’s largest contract chipmaker jumped 60% between October and June thanks to the global frenzy over everything related to artificial intelligence. But traders have turned more wary about just how much that will contribute to the bottom line, especially without a pickup in the smartphone and personal-computer business. Even high-end AI chip orders have slowed at a faster pace than expected.

For JPMorgan Chase & Co., all this means a slower recovery for TSMC going into 2024, given the softness in most end markets like PCs, smartphone and non-AI services, analysts including Gokul Hariharan wrote in a recent note. “With a murky macro outlook, we expect 1H 24 orders to remain sluggish.”

Meanwhile, analysts are also turning wary about capital spending, given that TSMC in June warned levels may fall to the bottom end of its $32 to $36 billion guidance for the year. Bloomberg-compiled estimates average closer to $30 billion. While capex cuts are commonly seen as a positive and prudent cost management tool, analysts say the recent reductions signal longer-term bearishness about chip demand and concerns about a protracted recovery.

Goldman Sachs Group Inc. recently slashed its estimate for TSMC’s capital spending for next year by more than 20% to $25 billion over concerns the chipmaker may delay its planned overseas capacity expansion. That would be its smallest amount of spending since the beginning of the pandemic.

The 12-month earnings estimate for TSMC has also been revised down by about 8% from a high in October, according to Bloomberg data, compared to little change in a broader gauge of Asia Pacific stocks.

Part of the issue at hand is the earlier pent-up optimism over TSMC’s cutting-edge 3-nanometer chip. The product, which was put into mass production in December, was seen as a technology breakthrough that would revolutionize everything from Apple Inc.’s iPhones to Nvidia Corp.’s AI generators.

But that promise has encountered some setbacks due to weak consumer demand. Earlier this month, TSMC reportedly told major suppliers it had to delay deliveries. Nvidia, Advanced Micro Devices Inc., and Qualcomm Inc. may even delay their orders for the chips into 2025, according to JPMorgan.

Given the lack of demand recovering back to pre-Covid levels amid macro weakness, “we do expect the recovery may take longer,” Citigroup Inc. analysts including Laura Chen wrote in a recent note.

There are still a number of positives for TSMC, however. Its leadership position in the foundry — or chip manufacturing — market, with a stable share of 59% in the second quarter, continues to make the company attractive. That’s compared with an 11% share for its biggest rival Samsung Electronics Co., according to Counterpoint Technology Market Research.

TSMC is also highly rated by analysts, with Bloomberg data showing no sell ratings and a 12-month average price target that’s 24% above its last close. As a key foundry for the likes of Nvidia and AMD, any upside surprise in its AI-related business in third-quarter earnings next month may also spur renewed buying.

Still, until there’s a broader economic recovery, traders may largely stay on the sidelines. Investors may become more cautious on longer-than-expected inventory adjustments at TSMC’s customers, according to Mizuho Securities Asia Ltd. analyst Kevin Wang. “We now expect such adjustment to extend into the first quarter next year, or even the second quarter due to soft end-demand,” he added.

Top Tech Stories

  • Microsoft Corp. was willing to hide its search engine’s “Bing” brand on Apple Inc. devices in order to secure an agreement with the iPhone maker and unseat Google, Chief Executive Officer Satya Nadella testified Monday.

  • Social media platform X is partnering with Paris Hilton and her digital ad agency 11:11 Media as it seeks new revenue and to redefine the platform formerly known as Twitter.

  • Several Taiwanese technology companies are helping Huawei Technologies Co. build infrastructure for an under-the-radar network of chip plants across southern China, an unusual collaboration that risks inflaming sentiment on a democratic island grappling with Beijing’s growing belligerence.

  • BYD Co. came within a whisker of toppling Tesla Inc. as the world’s biggest seller of electric vehicles last quarter, as the Chinese automaker pushed into new markets and factory downtime led to Tesla’s first quarterly delivery decline in more than a year.

Earnings Due Tuesday

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.

[ad_2]

LEAVE A RESPONSE

Your email address will not be published. Required fields are marked *