The outlook for the chip market is not optimistic as TSMC issues a warning

According to the financial news app, Wise Finance, Taiwan Semiconductor (TSM.US) has lowered its outlook for chip market expansion, warning that the smartphone and PC markets remain weak.

The world's largest advanced chip manufacturer has reduced its semiconductor market growth forecast for 2024 (excluding memory chips) from over 10% to around 10%. CEO Wei Zhejia also lowered expectations for the contract manufacturing industry dominated by Taiwan Semiconductor. At the same time, the company maintained its expectations for capital expansion and upgrade spending this year to be between $28 billion and $32 billion.

"Uncertainties in the macroeconomy and geopolitics still exist, which may affect consumer confidence and end-market demand," Wei Zhejia told analysts on a conference call. Today, Taiwan Semiconductor's stock price in Taiwan fell by over 6% at one point, marking the largest intraday decline in about 18 months.

Previously, Taiwan Semiconductor and other chip manufacturers saw growth potential from various AI demands. New sales forecasts also highlight the different paths companies take, such as manufacturing chips for consumer goods versus designing and manufacturing the most advanced chips for AI processing. However, this outlook released by Taiwan Semiconductor has cast a shadow over the expected strong performance in revenue.

It is worth noting that Taiwan Semiconductor's revenue forecast may also serve as a signal for other chip giants preparing to release their financial reports. ASML (ASML.US) announced on Wednesday that its first-quarter bookings fell by 22% year-on-year. Several companies, including Intel (INTC.US), are set to report earnings next week.

Before making this forecast, the company achieved quarterly profit growth for the first time in a year. The major chip manufacturer for NVIDIA (NVDA.US) and Apple (AAPL.US) also expects second-quarter revenue to be between $19.6 billion and $20.4 billion, higher than the expected $19.1 billion.

This outlook may help alleviate concerns among some investors about AI demand not being sustainable or the need for a longer recovery time for smartphones. Taiwan Semiconductor only recently disclosed its fastest sales growth since 2022, and despite global macroeconomic uncertainties, it still expects revenue to grow by at least 20% this year as the semiconductor market recovers.

This also indicates that the demand for chips accelerating AI development is beginning to offset the impact of the sluggish smartphone market. Apple accounted for about a quarter of Taiwan Semiconductor's revenue in 2023, but iPhone sales plummeted earlier this year.

In addition, Taiwan Semiconductor stated that it will begin mass production of the next-generation 2nm chips in the last quarter of 2025, with the time frame starting from next year generally shrinking. Wei Zhejia added that the company's automotive business will decline this year, contrary to previous forecasts of growth, but did not provide detailed explanations.

As the market bets that the company will be one of the most prominent winners in the global AI boom, Taiwan Semiconductor's market value has increased by about $340 billion since hitting rock bottom in October 2022. On Thursday, the company announced a 9% increase in first-quarter net profit, reaching NT$225.5 billion (approximately $7 billion), surpassing expectations Executives stated that the earthquake in Taiwan this month damaged some wafers used in chip production, leading to a decrease of approximately 50 basis points in gross margin for the second quarter.

Looking ahead, investors expect chips focusing on artificial intelligence to gradually account for a larger proportion of revenue. TSMC stated in January this year that the revenue from its artificial intelligence business is growing at an annual rate of 50%. However, some investors have also warned that the current level of demand for artificial intelligence chips may not be sustainable in the long run.

Wei Zhejia mentioned that the current market demand for artificial intelligence chips is very high, and the company will make every effort to increase production capacity to alleviate the shortage. He said, "It may still be insufficient this year, but we will strive to achieve it next year."