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AMD, Intel, MediaTek and Nvidia reduce their orders to TSMC

Until now, thanks to its market position and production capacity, TSMC has been practically immune to the volume decline of the technology market in the second and third quarters of last year 2022, but it seems that the situation may change soon for the company. , which is the largest chipmaker by volume of orders. Apparently, the company’s main customers have started to review the orders that they have committed to TSMC, and they would be reducing them, which can begin to be reflected from the fourth quarter of 2022.

According to a Digitimes report, almost all of TSMC’s customers will have to reduce their orders due to declining sales. Therefore, throughout this first quarter, TSMC will have fewer orders and the use of its production lines will decrease. For example, the usage rate of the company’s 7-nanometer production lines will fall roughly, according to forecasts, to 50% by early 2023.

Even TSMC’s 5 and 4 nanometer production lines will be running below full capacity. However, this is not so surprising, since they are used to make high-tech products, such as SoCs for the iPhone, and demand for advanced devices tends to drop during the first half of each year. Somewhat more worrisome, however, is the fact that even 28-nanometer chip manufacturing plants, which have been running at full capacity since the beginning of the chip shortage that began in early 2021.

Due to the slowdown in the economy in China, the economic situation in many European countries, and declining demand for many products in the United States, many major computer and smartphone manufacturers have lowered their orders for new chips from AMD, Intel, MediaTek and Nvidia. As a consequence, factory-less chip designers have had no choice but to dramatically reduce their orders to TSMC.

This order reduction has already started in the last quarter of 2022, increasing TSMC’s product inventory. However, it is not clear whether this reduction in orders will affect the company’s revenues in the last quarter, a period in which the company has started making 3-nanometer chips for Apple. Digitimes estimates that in the first quarter of 2023, TSMC’s sales will drop 15% compared to the last quarter of 2022.

Cutting orders from a contract manufacturer is not trivial, as factory-less chip designers are forced to make a fixed run of wafers in given quarters. However, TSMC is willing to accept compensation, since it will hold wafers with chips from AMD, Intel or Nvidia before they are ready to buy. It is also open to renegotiating long-term supply agreements in exchange for this reduction. However, these measures will not ease the situation for TSMC neither in the past quarter nor in the current one.

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