By Sam Nussey, Fanny Potkin and Toby Sterling
TOKYO/SINGAPORE/AMSTERDAM (Reuters) – Taiwan’s TSMC has told its main suppliers to slow production of high-end chip manufacturing equipment, as the world’s top contract chipmaker faces severe pressure on customer demand, two sources familiar with the matter said.
TSMC, which is grappling with delays at its $40 billion chip factory in Arizona, reflects the company’s growing vigilance on cost control and demand outlook, the sources said.
Suppliers now expect the delay to be short-lived, the sources said, speaking on condition of anonymity because the information is not public.
TSMC said it does not comment on “market rumours”.
The company quoted CEO Sis Wei in July as saying that weak economic conditions, China’s slow recovery and price market demand are making customers more cautious and more careful about managing inventory.
Companies affected by the order to delay include Dutch firm ASML, which makes lithography equipment essential for high-end chip manufacturing, one of the sources said.
In an interview with Reuters last week, ASML CEO Peter Wennick said some orders for its high-end equipment had been pushed back, without naming customers, and speculated it would be a matter of “short-term management.”
ASML, Europe’s most valuable technology company, is operating at high capacity and predicts that its total sales will grow by 30 percent this year.
“We’ve had a lot of[news]reports about fab readiness. Not only in Arizona, but also in Taiwan,” Wennk told Reuters on the sidelines of the chip manufacturing event.
ASML shares fell 2.2% after the company outperformed the Eurozone STOXXE50 index.
Smaller equipment firm ASM International, a supplier to TSMC, fell 4.2 percent with packaging equipment firm BE Semiconductor down 2.4 percent.
TSMC has been forced to push back production at the Arizona plant by a year to 2025 as it struggles to recruit workers and faces pushback from unions over efforts to bring in workers from Taiwan.
“They’re not doing it anywhere other than sending a bunch of people from Taiwan to help them build a factory in Arizona. So it’s kind of a double whammy,” Wennick said.
TSMC Chairman Mark Liu said last week that the Arizona site has seen “tremendous” progress over the past five months.
Chip circuit stress
The Taiwanese chip giant is not alone as demand recovery may take longer than expected.
TSMC’s key customer, Apple, released a new series of iPhones this week that included a faster chip, but did not raise prices, signaling the global smartphone slump.
Beijing has ordered some government employees to stop using iPhones at work, and tech giant Huawei’s launch of a flagship phone using Chinese-made chips is causing further stress at TSMC, one of the sources said.
TSMC used to make chips for Huawei but stopped supplying them after Washington imposed sanctions on the Chinese company. Analysts have discovered that Huawei has worked with Chinese contract chipmaker Semiconductor Manufacturing International Corporation (SMIC) to develop the advanced chip for the latest smartphone.
TSMC forecast in July a 10% slide in sales in 2023 and a 4% decline in operating margins this quarter compared to last quarter, citing weak demand for smartphones and PCs and uncertainty about the artificial intelligence market.
The chipmaker, which grew 21 percent to $36 billion last year from expansion plans set during the pandemic’s chip boom, is facing higher capital spending.
He estimated in July that investment spending this year would be at the low end of a forecast of $32 billion to $36 billion, and he said he expected a slower increase over the next few years.
(Reporting by Sam Nusse in Tokyo, Fanny Potkin in Singapore and Toby Sterling in Amsterdam; Editing by Myung Kim and Stephen Coates)
