TSMC, the Taiwanese semiconductor behemoth, is encountering a significant decline in revenue and is thus requesting guarantees from the US regarding subsidies for the construction of its latest $40 billion manufacturing plants in Arizona. These investments in the US form part of TSMC's strategy to broaden its operations beyond Taiwan in response to political tensions between Taiwan and China, and the ongoing US-China trade war over semiconductors that is affecting global corporations.
Moreover, chip manufacturers are now facing an unfavorable market landscape, marked by substantially reduced demand compared to previous years, at a time when trade tensions are escalating.
TSMC's preliminary revenue report for March indicates a net revenue decrease of over 15% on a year-on-year basis. The company's net revenue was above $5.6 billion in March 2022, but dropped sharply to $4.7 billion in March 2023, even when compared to February's revenue of $5.3 billion.
However, TSMC's performance is more promising when analyzed on a quarterly basis, as the company experienced a net revenue increase of 3.6% in Q1 2023, amounting to $16.6 billion, compared to last year's figure of $16.1 billion.
PC shipments drop
The recent decrease in revenue is probably linked to the significant decrease in demand for end-user devices. According to IDC's latest report, global shipments of conventional personal computers fell by 29% in the quarter compared to the previous year, totaling 56.9 million. IDC's analysts anticipate that sales will continue to decline in the short term due to the pandemic-induced surge in demand subsiding. However, they believe that normal refresh cycles could start to take effect again in 2024, potentially rejuvenating the market.
However, IDC's research VP for devices and displays, Linn Huang, cautioned that it is uncertain whether the market will recover. Huang mentioned in the report that if the economy continues to grow, consumers may purchase new devices, schools may replace old Chromebooks, and businesses may shift to Windows 11, resulting in a significant market upswing. However, if there is a recession in important markets, the road to recovery could be challenging.
TSMC's decreasing revenues are not unique to the semiconductor industry, as other chipmakers like Samsung have also reported a decline in revenue. As a result, TSMC and Samsung are under substantial pressure to manufacture advanced chips in the US, thanks to new laws such as the CHIPS and Science Act.
Overseas chipmakers have expressed additional concerns about the broad range of US criteria that semiconductor manufacturers must adhere to when applying for CHIPS Act funding, including worries about the confidentiality of confidential business information and the possibility of "upside sharing" provisions that could result in excess profits being returned to the government.
According to Reuters, Taiwan's Economy Minister Wang Mei-hua confirmed that TSMC is engaged in talks with the US government regarding the specifics of CHIPS Act subsidies. TSMC issued a statement confirming these discussions with the US government.