TSMC urges ‘delay in chip equipment deliveries’ amid demand fears

Tokyo/Singapore/Amsterdam — Taiwan Semiconductor Manufacturing Company (TSMC) has told its major suppliers to delay the delivery of high-end chipmaking equipment, as the world’s top contract chipmaker grows increasingly nervous about customer demand, two sources familiar with the matter said.

The instruction by TSMC, which is grappling with delays at its $40bn chip factory in Arizona, is aimed at controlling costs and reflects the company’s growing caution about the outlook for demand, the sources said.

Suppliers expect the delay to be short term, the sources said, declining to be named as the information is not public.

TSMC said it does not comment on “market rumour”.

The company referred Reuters to comments by CEO CC Wei in July that weaker economic conditions, slower recovery in China and softer end-market demand is making customers more cautious and more mindful of controlling inventory.

Companies affected by the instruction to delay include Dutch firm ASML, which makes lithography equipment essential for high-end chipmaking, the sources said.

In an interview last week, ASML CEO Peter Wennink said some orders for its high-end tools have been pushed back, without naming customers, and that he expected it would be a “short-term management” issue.

ASML is operating at maximum capacity and overall sales are forecast to grow 30% this year.

“We’ve had several [news] reports about fab readiness. Not only in Arizona ... but also in Taiwan,” Wennink said, referring to preparations for chip manufacturing.

TSMC has been forced to push back production at the Arizona plant by a year to 2025, as it struggled to recruit workers and faced pushback from unions on efforts to bring in workers from Taiwan.

“If you ship a lot of people from Taiwan to help build a factory in Arizona, they’re not working somewhere else. So this is kind of a double whammy,” Wennink said.

TSMC chair Mark Liu said last week there had been “tremendous” improvement at the Arizona site in the past five months.

Faster chip

The Taiwanese chip giant is not alone in worrying a bounce back in demand may take longer than expected.

Apple, a key TSMC customer, launched a new series of iPhones this week that included a faster chip, but it did not raise prices, reflecting the global smartphone slump.

Media reports that Beijing has ordered some government employees to stop using iPhones at work, and the launch by tech firm Huawei of a flagship phone using Chinese-made chips is causing further unease at TSMC, one of the sources said.

TSMC used to make chips for Huawei but suspended supplies after Washington imposed sanctions on the Chinese firm. Analysts have found Huawei worked with Chinese contract chipmaker Semiconductor Manufacturing International Corporation to manufacture an advanced chip for its latest smartphone.

TSMC forecast in July a 10% slide in 2023 sales and as much as a 4% point drop in operating margin this quarter from the previous quarter, citing weak demand for smartphones and PCs and uncertainty about the market for artificial intelligence.

The chipmaker is also facing elevated capital expenditure, which increased 21% to $36bn last year, from expansion plans put in place during the pandemic-driven chips boom.

It estimated in July that investment spending for this year would be at the lower end of a previous forecast of $32bn-$36bn, and said it expected a slower increase in the next few years. 

Reuters