At a time when artificial intelligence is flourishing, a semiconductor decline is set to worsen, according to Taiwan Semiconductor Manufacturing Company (TSMC).
The AI boom seems to only be ramping up and yet, it has not helped to offset economic woes worldwide or China’s paused recovery.
Last Thursday, the largest global microchip company went on to warn that it is predicted that 2023 revenue will dip 10%, and not the 5% projected three months ago.
If TSMC’s forecasted decline is accurate, it would translate into a decrease of 15% in revenue for 2023 quarters 3 and 4, compared to the same time last year.
“Three months ago we were probably more optimistic, but now [we are] not. The recovery of the Chinese economy is weaker than we thought, so end-market demand is not as we expected,” said CC Wei, chief executive.
“Although we have very good AI end-market demand, it is not enough to offset [that weakness].”
The growth of large language models behind generative AI services such as ChatGPT is outpacing the supply of high-end processors for data centres which have led to a capacity shortage, said TSMC.
The company also noted that this challenge will most likely persist until 2024 but will double its high-end packaging capacity to address the capacity storage.
Wei commented that the robust demand from generative AI “only reinforces our belief in long-term growth”.
The chief executive went on to say that it is expected that the AI-related processor business would increase even more and up to 50% annually over the next few years. This would extend TSMC’s share of revenue from 6% to 10%.
All other segments, TSMC expects to shrink, like products inclusive of chips for smartphones, automotive and industrial applications.
According to TSMC, the current atmosphere points to underperformance for the company and the entire contract manufacturing sector at large.
In this year’s second quarter, TSMC has already seen a net profit drop of 23.4% year on year AUD $8.633bn which was less than analysts projected.
Beyond the capacity shortage, other factors will further affect profitability by the end of the year such as the continuing ramp-up of the newest process technology, surging utility prices, and overseas expansion.
According to TSMC chair Mark Liu, the company’s gross margin was down 2.2% points sequentially in the June quarter and is estimated to be weakened by 3 to 4% points by 2024.
“We are entering a critical phase of handling the most advanced equipment,” Liu said.
“However, we are encountering challenges because of a shortage of skilled workers,” he said pointing to the decision to send more employees from Taiwan to train U.S. technicians.
