TSMC faces reduction in orders from major 5nm and 7nm customers

Amid a fight between investment banks for its gross margins, the Taiwan Semiconductor Manufacturing Company (TSMC) could brace for a reduction in orders later this year. Courtesy of United Daily News (UDN), the report cites fears among foreign investors that the reduction in orders will begin in the fourth quarter of this year and involve consumer electronics companies that use the manufacturing nodes of advanced semiconductor from Taiwanese factory. It follows overwhelming optimism for TSMC’s future from investment banks and warns that the alleged reduction in orders may halve the company’s fourth-quarter revenue growth.

TSMC’s fourth quarter revenue growth could drop to 5% amid report on fears of reduced orders

Although the UDN does not mention the source of the report, it does indicate that the details were mentioned by investors based in the United States. These details reiterate concerns that have surfaced sporadically throughout this year, indicating that the semiconductor manufacturing industry may have to prepare for an inventory correction later this year or early in 2022 as companies are building their stocks following the historic shortage of chips ushered in by the ongoing pandemic.

TSMC’s second generation 3nm EUV process can reduce layers by 20% and improve gross margin

Specifically, they point out that semiconductors manufactured by TSMC on its state-of-the-art 5-nanometer and 7-nanometer processes carry the risk of a reduction in orders in the fourth quarter which is expected to begin next month. He also mentions companies that will cut orders, naming Cupertino tech giant Apple Inc and Taiwanese company MediaTek.

Apparently, Apple would reduce orders for its previous generation smartphone processors, and MediaTek would reduce orders for its fifth generation (5G) cellular modems for smartphones. Apple’s processors are manufactured using TSMC’s 5-nanometer semiconductor manufacturing process, and MediaTek’s modems use the older 7-nanometer process node. Cumulatively, the report estimates that the reduction in orders will reduce TSMC’s fourth quarter revenue growth by 5% from market expectations of 10%.

A tanker truck for TSMC securing Tainan’s groundwater for the factory chip manufacturing. Image: Song Jiansheng / United Daily News

He cites a potential reduction in demand for smartphones, televisions and personal computers to cloud the outlook for the chip industry. When it comes to the personal computing segment, representatives of NVIDIA Corporation have repeatedly stated that demand for their products is high, with NVIDIA dealing with a supply shortage of its latest graphics processors.

Today’s report follows a series of optimistic expectations for TSMC from investment banks such as Citigroup and HSBC. In its latest report, Citi claimed that the strength of Apple’s orders for its latest smartphones launched earlier this month and the overall tightening of supply in the semiconductor industry would cause TSMC to post quarterly growth. successive layers of income throughout the remainder of this year.

Georgetown University research highlighting semiconductor manufacturing costs alongside technological advancements. Image: AI Chips: What They Are and Why They Matter By Saif M. Khan / Center for Security and Emerging Technology, School of Foreign Service, Georgetown University. Manufacturing costs fall as a manufacturing process matures and its orders increase, with manufacturers devoting more resources to it.

In addition, he also pointed out that the company’s second-generation 3-nanometer node will reduce direct manufacturing costs due to the greater use of ultraviolet rays in its production. TSMC has yet to start production of the first-generation 3-nanometer process, as the technology is expected to strengthen the company’s position in the chip manufacturing industry. According to Citigroup, the cut in costs will increase TSMC’s gross margins, with the bank echoing sentiments from HSBC, which suggested last month that a recently reported chip price increase would increase gross margins.

TSMC may generate $ 100 billion in revenue in 2025, catching up with Intel

The wave of bullish reports on TSMC’s gross margins came when investment bank Morgan Stanley said in late June that the company may not be able to maintain a 50% gross margin due to increased costs. transistors for the new manufacturing process, with the current semiconductor supply shortage ending in Q4 2021 and TSMC’s primary market being smartphones.

Morgan Stanley was countered by JPMorgan earlier this month, which pointed out that high performance computing (HPC) products will overtake smartphones and consumer electronics when it comes to demand for TSMC chips. In addition, the bank also said that TSMC’s innovative post-production technologies and a strong wafer ecosystem will allow it to maintain a strong position in the industry.

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