As TSMC’s earnings call approaches, the market is abuzz with rumors that the company may revise down its capital expenditure target for this year. This potential adjustment is believed to be driven by delays in Intel’s 3-nanometer outsourcing and the deferral of the production schedule for TSMC’s 4-nanometer US fab. The initial capital expenditure target, which was close to the $32 billion to $36 billion range, may now be lowered to below $30 billion, marking its lowest point in nearly three years.

According to Taiwan’s Economic Daily, TSMC has refrained from commenting on these speculations. Even if TSMC does adjust its capital expenditure for this year, industry sources suggest that the company will increase its annual R&D expenses, continuing its commitment to advanced research and development.

In recent years, TSMC has rapidly expanded its capital expenditure, reaching a record high of $36.3 billion last year. In the first half of this year, the actual capital expenditure amounted to $18.11 billion, including $8.17 billion in the second quarter, slightly down from the $9.94 billion in the first quarter.

During their July earnings conference, TSMC stated that their capital expenditure for the year would remain in the range of $32 billion to $36 billion. However, considering market dynamics, the actual expenditure for the full year is expected to be towards the lower end of this range.

The latest reports suggest that due to the delays in Intel’s 3-nanometer outsourcing and the postponement of the 4-nanometer production schedule at the US fab, approximately $4 billion originally earmarked for this year’s capital expenditure may be postponed until next year, resulting in capital expenditure for this year falling below $30 billion. As for next year’s capital expenditure, it may remain on par with this year.

ASML, a leading supplier of semiconductor lithography equipment, previously revealed in its July earnings conference that there were delays in shipments of EUV equipment due to installation delays at customer factories. However, ASML maintained a robust order backlog and expects overall performance to continue growing in 2024.

Industry experts believe that the “installation delays” mentioned by ASML at that time were related to TSMC, and because of the delay in EUV equipment installation, TSMC’s capital expenditure for this year may be deferred accordingly.

Analysts in the industry suggest that if we consider TSMC’s earlier projection of capital expenditure falling within the $32 billion to $36 billion range, and subtract the actual expenses incurred in the first half of the year, the capital expenditure for the second half of the year could see a decline, estimated to be around $13.89 billion or more. If the postponement rumors materialize, second-half capital expenditure might fall below $10 billion.

According to a report by Taiwan’s Media TechNews, Taiwan’s leading semiconductor foundry, TSMC (Taiwan Semiconductor Manufacturing Company), experienced a significant 2.43% decline in its ADR (American Depositary Receipt) on the last trading day of the previous week in the U.S. stock market. This drop was attributed to media reports indicating that TSMC had requested its suppliers to delay equipment deliveries, subsequently affecting the stock prices of related semiconductor equipment companies. Furthermore, Goldman Sachs Securities has reduced its projections for TSMC’s capital expenditure over the next two years.

Goldman Sachs Securities noted that due to the slower-than-expected recovery in end-market demand, they have adjusted their revenue and capital expenditure estimates for TSMC and believe that both TSMC and UMC, another major semiconductor foundry, might delay their capacity expansion schedules. To enhance efficiency, these companies may also allocate equipment resources more effectively, reducing capital expenditures for 2024 and 2025.

Goldman Sachs Securities estimates that TSMC’s capital expenditure for 2023 will remain around $31.6 billion, with no adjustments made. However, due to the uncertainty surrounding demand recovery, TSMC is likely to reduce the pace of equipment procurement for advanced nodes. Instead, some of Taiwan’s equipment may be relocated to overseas production bases in Japan and the United States. Consequently, Goldman Sachs expects TSMC’s capital expenditure for 2024 to decrease from $28 billion to $25 billion, a 21% reduction compared to 2023. As for 2025, the capital expenditure projection has been adjusted from $36 billion to $35 billion.

Additionally, Goldman Sachs Securities has also lowered the utilization rates for TSMC’s 3nm process. Utilization rates for 2023 and 2024 have been adjusted from 40% and 71% to 36% and 65%, respectively, while the 2025 utilization rate is expected to remain unchanged at 78%. The production capacity for the 3nm process in 2024 and 2025 has also been revised from 80,000 and 90,000 wafers per month to 70,000 and 80,000 wafers per month.

(Photo credit: TSMC)