Preserving Pricing Power: Analyst Anticipates TSMC's Announcement of Capital Expenditure Cuts in Upcoming Earnings

Needham analyst Charles Shi reiterates Taiwan Semiconductor Manufacturing Company Ltd TSM with a Buy and raises the price target from $110 to $118.
The analyst reduced his estimate for TSMC's 2023 gross capital expenditure from $31 billion to $28 billion.
He reduced his estimate for TSMC's 2024 gross capital expenditure from $35 billion to $28 billion.
In March, the analyst noted that TSMC might have cut back its 2H23 capex, slowed down fab construction, and pushed out equipment orders to 2024. Over the past three months, his checks led him to believe that TSMC has made further cuts to the 2024 spending plan, particularly on 3nm.
Previously, he expected TSMC to add a significant 3nm capacity, including 30K in 2023 and 55K in 2024. Now, informed by his latest checks, he thinks TSMC may only add 15K of capacity in 2023 and 25K in 2024.
Other than 3nm, he thinks the only significant investment in 2024 would be the 28nm Japan fab, which remains on track.
He believes TSMC may prioritize digesting the $49 billion latent capacity, primarily 5nm and 3nm, already installed in the field but not yet in production.
Shi thinks such capex cuts will cool off the arms race in the leading-edge foundry market, bring supply/demand back in balance, and preserve TSMC's pricing power in the next upcycle.
He expects TSMC will announce the capex cuts on the upcoming 2Q23 earnings call and think investors should view the action as a solid positive for the business and the stock.
Price Action: TSM shares traded higher by 1.14% at $99.71 on the last check Thursday.
Photo via Wikimedia Commons

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