Taiwan Semiconductor Manufacturing Company (TSMC) has reportedly asked its main suppliers to delay the delivery of high-end chip manufacturing equipment, as per information obtained by Reuters. The primary reason behind this decision is TSMC's growing concerns about customer demand and the desire to avoid holding excess inventories that could impact profitability. However, the affected suppliers believe that the delay will be temporary. TSMC, as a company policy, refrains from commenting on "market rumors."
One of the companies affected by these postponements is ASML, a Dutch firm that is a leader in the field. ASML's CEO, Peter Wennink, confirmed last week in an interview with Reuters that some orders for their high-end production machines had been deferred, without disclosing specific customers. He described this as a "short-term management" issue. ASML is currently operating at full capacity, with global sales expected to increase by 30% this year.
The delay may be connected to TSMC's manufacturing delays at its $40 billion plant project in Arizona, USA, and potential schedule shifts in expansion operations in Taiwan. In Arizona, the company faced challenges such as a shortage of employees and opposition from unions regarding the arrival of workers from Taiwan. Nevertheless, TSMC's President, Mark Liu, stated last week that the Arizona site has seen "considerable" improvements over the past five months.

The cycle in question

TSMC isn't the only one concerned about a prolonged recovery in demand. Apple, one of its major customers, recently released new iPhones with faster chips but did not increase prices, indicating caution in the smartphone market.
Reports of Beijing instructing government officials to stop using iPhones at work, along with Huawei launching a flagship phone featuring Chinese-made chips, have added to TSMC's unease. TSMC used to produce chips for Huawei but halted deliveries due to U.S. sanctions against the Chinese company.
Analysts have observed that Huawei has been collaborating with Chinese chipmaker SMIC to produce advanced chips for its latest smartphones. In July, TSMC predicted a 10% decline in sales for 2023 and a 4% drop in operating margin for this quarter compared to the previous one, citing weak demand for smartphones and computers and uncertainty in the artificial intelligence market.
Additionally, TSMC faces substantial capital expenditure, which increased by 21% to $36 billion last year due to expansion plans during the pandemic-induced chip boom. In July, the company anticipated that its capital expenditure for the year would be at the lower end of the previously forecast range of $32-36 billion and expected a slower increase in the coming years.

European players suffer

ASM International's stock dropped by 5% following the announcement on European stock markets. Other semiconductor production machinery designers, such as BE Semiconductor (-3%), Meyer Burger (-3%), OC Oerlikon (-2.4%), ASML (-2%), and VAT Group (-2%), also experienced declines. However, their customers, including STMicroelectronics, Infineon, and X-Fab, remained relatively stable, trading near break-even.
Meanwhile, most machine manufacturers are based in South Korea and Japan, and they were not impacted as their markets had already closed for the week before the TSMC rumor emerged.