Look for a giant reduce to TSMC’s 2023 outlook as a bullish signal for chips, one analyst says forward of earnings

The neatest thing Taiwan Semiconductor Manufacturing Co. can do in its earnings report Thursday is to chop its outlook for 2023 huge, indicating a bottoming within the first half of the yr, in accordance with one analyst Monday.

is scheduled to report fourth-quarter earnings on Thursday at 1 a.m. Eastern Time.

Needham analyst Charles Shi, who retains TSMC as his prime decide for 2023, stated that the larger the reduce to TSMC’s full yr steerage, the higher form 2024 shall be. The analyst lowered his 10% 2023 progress to five% and set a 30% progress goal in 2024.

“We believe our 5% growth forecast for 2023 is at the end of a buyside estimate range of 5% to -5%,” Shi stated. “However, the expected mean reversion of semiconductor MSI suggests that should TSMC cut its 2023 outlook, the stronger the rebound in 2024 will be. At this point of the cycle, we would view big cuts as bullish.”

Also a bottoming in income within the first quarter would point out a bottoming of quantity within the second quarter, setting the fab up for a 2024 rebound, stated Shi.

“We believe the industry’s wafer shipment will decline by 10% in 2023, and bottom between 2Q23 and 3Q23,” in accordance with the Needham analyst. “We think 2Q23 will mark the bottom for the foundry sector from a volume perspective. We think
TSMC’s wafer shipments may also bottom in 2Q23 but revenue should bottom ahead of volume in 1Q23.”

Read: Apple, AMD verify they’re amongst TSMC’s first Arizona clients, whereas Intel preps for return to innovative in 2023

Still, October gross sales surged 56.3% to roughly $6.9 billion, and November gross sales rose 50.3% to about $7.3 billion from a yr in the past, throughout a broadly reported chip glut, with the fab posting 4 different months in 2022 with gross sales positive factors of about 50% or extra, with December gross sales figures due out any day now.

Shi additionally expects $34 billion in capex in 2023 for TSMC, with a return to $40 billion capex in 2024.

Last yr, TSMC doubled down on capability within the midst of a worldwide chip scarcity that ended flipping to a glut in mid 2022, however whereas others reduce capability the fab remains to be constructing out its capability, just like the recent expansion and volume production at its 3-nanometer fab in Southern Taiwan Science Park in Tainan, Taiwan, and expanded website plans in Arizona. Last yr, TSMC budgeted $40 billion to $44 billion to extend its fab capability amid the chip scarcity, double what the corporate pledged this time final yr when it unveiled a $22 billion capital expenditure funds, however final quarter reined that into $36 billion, whereas forecasting fourth-quarter income of $19.9 billion and $20.7 billion. Analysts surveyed by FactSet count on income of $20.47 billion.

TSMC provides chip makers who shouldn’t have their very own fabs like Nvidia Corp. 
 Advanced Micro Devices Inc. 
 and Apple Inc. 

American depositary receipts of TSM had been up 3.8% Monday, on par with the PHLX Semiconductor Index
whereas the S&P 500 Index
rose 1.3%, and the tech-heavy Nasdaq Composite Index
gained 2.1%.