AMD, Intel, and Nvidia Reportedly Slash Orders with TSMC

TSMC
(Image credit: TSMC)

Being the world's No. 1 foundry, TSMC was almost immune to the softening high-tech market in Q2 and Q3, but it looks like the party is over even for the world's largest contract chip manufacturer. TSMC's leading customers began to revise their orders to the company, affecting the foundry's results starting from the fourth quarter of 2022, reports DigiTimes

According to the report, virtually all TSMC clients will experience a downturn and have to cut orders, so TSMC's utilization will decline significantly in Q1 2023. For example, the utilization rate of TSMC's N7-capable lines (7nm, 6nm-class technologies) will decline to around 50% in early 2023. Furthermore, even TSMC's N5/N4-capable lines will be underutilized, though this may not come as a surprise since these are used to make leading-edge products, like Apple's smartphone SoCs, and demand for advanced handsets is usually down in the first half of the year. More alarming is that even N28-capable fabs — which have been fully loaded since the beginning of the chip deficit in early 2021 — will be underutilized. 

Due to the slowing economy in China as well as its COVID lockdowns, an economic downturn in numerous European countries, and reduced demand for many products in the U.S., large computer hardware, PCs, and smartphone makers lowered their procurement of new chips from companies like AMD, Intel, MediaTek, and Nvidia. As a result, the fabless chip designers reportedly had no choice but to slash orders to TSMC. 

The order cuts will come into effect in Q4 2022, which will increase TSMC's inventories, though it is unclear how the significantly reduced orders will affect the company's revenue this quarter. Meanwhile, DigiTimes estimates that TSMC's Q1 2023 sales will decrease by 15% quarter-over-quarter. By contrast, TSMC's Q1 2022 revenue exceeded its Q4 2021 revenue by 12.1%. 

Slashing orders to a contract manufacturer is not trivial since fabless chip designers are obliged to procure a fixed number of wafers in certain quarters. Nevertheless, TSMC is reportedly willing to accept compensation (as it will hold wafers with chips from AMD, Intel, Nvidia, etc., before they are ready to buy them) and even renegotiate deals on long-term supply contracts (i.e., increase the number of wafers that a company is committed to buying in the future) in exchange. Such measures will not make TSMC's life any easier in Q4 2022 or Q2 2023, though. 

Market observers generally remain optimistic about the demand for advanced chips returning to normal in 2023. As a result, TSMC is still expected to post revenue growth for the year, but the sales increase may not be as impressive as the 2021 – 2022 period.

Anton Shilov
Freelance News Writer

Anton Shilov is a Freelance News Writer at Tom’s Hardware US. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

  • Mpablo87
    TSMC is the best company ! ! ! ! ! !
    Products are Good! ! ! ! !
    Reply
  • jkflipflop98
    Mpablo87 said:
    TSMC is the best company ! ! ! ! !

    They aren't going to be able to pay so much for advertising after this.
    Reply
  • -Fran-
    This is interesting news, for sure. At the same time, I don't like this. Specially AMD. What they need to do is not cut back their orders, but just build things that are enticing to buy. Go back to the under-$300 market and you will make the wafers count. People doesn't want to buy stupid expensive products at times of recession, but they do buy things which are accessible and won't put you in debt to do so. Well, what do I know. They hold their own sales projection data based on whatever cloud they're standing on top of, far disconnected from us.

    jkflipflop98 said:
    They aren't going to be able to pay so much for advertising after this.

    Maybe that one is a freebie? Like a promotional sample of the services? XD

    Regards.
    Reply
  • 2Be_or_Not2Be
    I wonder if none of the big US automakers use TSMC for car chips. I have seen a number of reports of cutbacks for TSMC/GloFo/foundries, and yet all of the automakers say supply constraints still affect them. I know there is a lot of time between getting orders & actually producing the required output, so cutbacks now might be due to expected order reductions for future output. So I guess TSMC probably doesn't do a lot of chips for the auto industry as they have higher-end nodes, but I'd curious where the real supply constraints are right now.
    Reply
  • kjfatl
    This is the normal boom-bust cycle in the chip industry. In the past 2 years many customers have build up large stocks of chips "just in case." These now have to be used up or thrown out.
    Reply
  • Endymio
    2Be_or_Not2Be said:
    I wonder if none of the big US automakers use TSMC for car chips.
    Yes, TSMC makes a large number of automotive-industry chips. They even have nodes specifically optimized for automotive applications.
    Reply
  • DataMeister
    I wonder if this will help with some of the chip shortages in other areas. For example, stock for Raspberry Pi 4 still seems to be rare.

    It would be interesting to have an article covering all the companies that TSMC produces for.
    Reply
  • vanadiel007
    Based on the pricing of video cards in the past 3 years, I have come to the conclusion the high pricing is not due to crypto currency or scalpers. I have concluded it's due to pricing schemes and revenue models by the GPU chip producers.

    If 3 years after Covid they still have not figured out how to combat the chip shortage and fix the supply chain issues, I am afraid they will never figure it out and pricing of everything will stay high or go higher.

    I truly hope they all suffer immense losses and go into bankruptcy protection. They deserve it. I do feel for all the innocent workers who are loosing their jobs due to cutbacks. Don't feel one single bit for those in control of these companies.
    Reply
  • Endymio
    vanadiel007 said:
    If 3 years after Covid they still have not figured out how to combat the chip shortage and fix the supply chain issues, I am afraid they will never figure it out and pricing of everything will stay high or go higher.
    Moore's Law is dead, the two-year inflation rate is 16%, not 2%, and "Graphics" Processing Units are now primarily being used for tasks besides playing video games. You'll never see massive performance gains at the same price point again. Ever.

    I truly hope they all suffer immense losses and go into bankruptcy protection. They deserve it.
    When you sell your home, your car, or any other major asset for one penny less than what the market will bear, come back and talk to us. GPU makers are in business to turn the best possible profit they can, not to feed the addiction of self-entitled video-game junkies.
    Reply
  • EasyJep
    Endymio said:
    Moore's Law is dead, the two-year inflation rate is 16%, not 2%, and "Graphics" Processing Units are now primarily being used for tasks besides playing video games. You'll never see massive performance gains at the same price point again. Ever.

    When you sell your home, your car, or any other major asset for one penny less than what the market will bear, come back and talk to us. GPU makers are in business to turn the best possible profit they can, not to feed the addiction of self-entitled video-game junkies.
    Wow, people in your life probably really love you.
    Reply