TSMC stock gains as forecast update comes in 'better than feared'

By Wallace Witkowski

Chip maker says capital spending will come in at low end of previously stated range, a relief for chip sector attempting to move past inventory glut

Taiwan Semiconductor Manufacturing Co.'s chairman reportedly updated its capital spending forecast Tuesday, and shares gained as the chip fabricator stuck to its capital spending forecast even as smartphone demand dries up.

Bloomberg News reported Tuesday that TSMC (2330.TW) Chairman Mark Liu told reporters after the third-party fab's annual shareholder meeting that he expects capital spending to come in at the lower end of the company's $32 billion to $36 billion range for the year. TSMC trimmed its outlook but kept its capex forecast intact in April.

American depositary receipts of TSMC, which reached an intraday high of $100.60, closed Tuesday up 1.8% at $99.82, for a 34% year-to-date gain, compared with a 11.6% rise in the S&P 500 index , and a 26.9% rally in the tech-heavy Nasdaq Composite Index .

Jordan Klein, desk analyst at Mizuho, said TSMC "officially did what buy-side was expecting for months -- talk down capex for '23 to low end of $32-36B range due to ongoing inventory correction largely in PC / smartphone customers."

While bears on the fab had expected a cut to the upper $20 billion area, the forecast of $32 billion to $33 billion "feels better than feared."

The third-party chip fabricator, or "fab" -- industry parlance for the high-tech factories where billions of transistors are etched onto silicon wafers to make chips -- manufactures the chips designed by Apple Inc. (AAPL) , Nvidia Corp. (NVDA) , and Advanced Micro Devices Inc. (AMD) among many chip makers that do not maintain their own fabs like Intel Corp. (INTC).

The update is a relief mainly for the companies that sell equipment to fabs like TSMC. Chip-making equipment suppliers in order of exposure to TSM include ASML Holding NV, (ASML.AE), KLA Corp. (KLAC), Applied Materials Inc. (AMAT), and Lam Research Corp. (LRCX).

ASML ADRs finished Tuesday down 0.8% at $716.63, versus a 0.6% gain for KLA's share price to close at $461.00, a 0.2% rise to close at $133.94 a share for Applied Materials, and a 1.1% gain from Lam shares to close at $612.20.

"Buy-side sentiment remains cautious to mixed at best, and I view this update as more a clearing event vs negative," Klein wrote.

-Wallace Witkowski

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06-06-23 1640ET

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