TSMC Cautions Red-Hot Chip Industry Growth Could Cool Amid Declining Automotive Chip Demand

Taiwan Semiconductor TSM has cautioned that the red-hot growth in the chip industry might be cooling down, citing a potential decline in automotive chip demand.

What Happened: The world’s largest chipmaker, TSMC, has revised its growth forecast for the chip market, excluding memory chips, to 10%, down from the previous projection of “more than 10%,” the company said in a post-earnings call.

The company’s CEO, C.C. Wei, attributed this shift to a potential decrease in demand for automotive chips, a sector that TSMC had previously anticipated would continue to grow throughout the year.

“Looking at 2024, macro economy and geopolitical uncertainties persist, which could further affect consumer confidence and end-market demand,” CEO Wei said on the analyst call.

Despite these concerns, TSMC is optimistic about its own future, projecting a potential 30% increase in second-quarter sales.

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Wei emphasized the strong demand for AI-related chips, which are expected to account for a significant portion of TSMC’s revenue in the coming years.

TSMC’s role as a key manufacturing hub for tech giants like NVIDIA Corp NVDA and Apple Inc AAPL positions it at the forefront of AI development.

Despite exceeding revenue and profit expectations in the first quarter, TSMC’s stock experienced a 6% drop following the adjusted industry outlook.

Why It Matters: The revised forecast from TSMC comes amid a series of events that have impacted the global chip industry. Earlier in April, Taiwan was hit by a massive 7.2 magnitude earthquake, forcing TSMC to suspend chip production. This natural disaster raised concerns about the potential disruption to chip supplies, a critical component in various tech products.

Despite these challenges, Taiwan has been actively strengthening its global standing through ‘chip diplomacy’, signing tech pacts with countries like Canada and France. This strategic move aims to solidify Taiwan’s position as a key player in the global tech supply chain, despite the ongoing geopolitical tensions with China.

Additionally, recent data has highlighted the insatiable demand for AI chips, a sector in which TSMC is heavily involved in. This demand, coupled with the potential industry slowdown, could have far-reaching implications for the tech industry and global supply chains.

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