It’s expensive being the world’s dominant chipmaker. Taiwan Semiconductor Manufacturing on Thursday reported a bumper end to 2022, with December quarter earnings up a blistering 78% year-on-year to a record $9.7 billion. But costs, from overseas expansion, research and development and other factors are forecast to eat into profitability as the market enters a downturn.
The company, which enjoys a near-monopoly making cutting-edge chips for customers from Apple (AAPL.O) to Nvidia (NVDA.O), guided first-quarter sales to be between $16.7 billion to $17.5 billion. At the midpoint, that represents a 14% fall from the previous quarter, thanks to plunging semiconductor demand. Notably, operating profit margin for the period is forecast to be as low as 41.5%, higher than rivals but more than 10 percentage points less than in the three months to December.
Fewer customer orders, cost inflation and unfavourable exchange-rate movements are factors. But TSMC also flagged R&D expenses will rise by a fifth this year, as developing next-generation technology gets pricier. Moreover, the company’s new factories in the United States are adding to TSMC’s expenses: executives said that construction costs are five times higher in America than in Taiwan. Capital expenditure is also forecast to be as much as $36 billion in 2023, roughly matching last year’s level. The bills are adding up. Reuters