Slower global economic growth and US export restrictions would dent revenue at Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) over the next 12 to 18 months, Moody’s Investors Service said in its latest report.
“We expect revenue at TSMC to fall by 1 percent after its robust growth of around 40 percent in 2022,” it said, adding that earnings would also slip from a high comparison base.
Nevertheless, strong net cash positions and good access to funding would enable the company to weather the short-term challenges, Moody’s said.
Photo: Hung You-fang, Taipei Times
Slowing global growth, coupled with high interest rates and inflation, is reducing chip demand, especially for consumer electronics and smartphones, it said.
Chip inventory corrections due to stockpiling during the COVID-19 pandemic are also curbing order inflows, it added.
US export restrictions that limit China’s ability to obtain or build advanced computer chips would take a gradual toll, eating into TSMC’s revenue and earnings growth potential, but the effects are expected to be limited, as TSMC has a one-year exemption, Moody’s said.
Softening consumer demand would reduce capacity utilization, weighing on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margins, a key profitability measure, it said.
In the face of the new trade hurdles, TSMC needs to continue spending heavily to develop next-generation technologies and increase capacity so that it can meet an expected surge in chip demand over the next three years, given accelerating digital transformation and breakthroughs in artificial intelligence-powered applications, Moody’s said.
Yet, new products would weaken margins and hurt profitability in the early stage, while intense competition causes price pressure, it said.
TSMC’s adjusted EBITDA margin would decline to 68.5 to 69.0 percent this year from 70.4 percent last year, it added.
Despite the challenges, TSMC holds a healthy cash balance, exercises stable dividend policies and generates solid cash flows, which would help the company maintain stable credit quality this year, Moody’s said.
Last year was a bumper earnings year for TSMC and other independent foundry service providers, it said, adding that TSMC derived more than 90 percent of its revenue from semiconductor foundry services.
TSMC shares fell 1.58 percent to NT$559 in Taipei trading yesterday, Taiwan Stock Exchange data showed.
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