8 ms·

TSMC just warned the world of a 10% decline in chip revenues. Given that chips today are critical component of every phone, TV, laptop, desktop PC, server, vehi

by cs702 3y ago

TSMC just warned the world of a 10% decline in chip revenues. Given that chips today are critical component of every phone, TV, laptop, desktop PC, server, vehicle, dishwasher, and pretty much everything else, TSMC's warning suggests we're going to experience a significant global economic contraction soon. Hopefully I'm wrong.

ajb 3y ago
This isn't necessarily representative of the economics of downstream sectors, because it's probably caused by the Bullwhip Effect[1] like the recent semiconductor shortage. "The bullwhip effect refers to a scenario in which small changes in demand at the retail end of the supply chain become amplified when moving up the supply chain from the retail end to the manufacturing end." [1] https://www.investopedia.com/bullwhip-effect-definition-5499228 https://www.investopedia.com/bullwhip-effect-definition-5499...
- willis936 3y ago
  That would imply there is a surplus somewhere, which there's not. There's a reduction in orders from a reduction in demand regardless of the state of the buffer.
  - guestbest 3y ago
    Their is a surplus of labor.
  - gorkish 3y ago
    It's still the same effect. Supply doesn't have to overshoot. Computer chips aren't just stamped out instantly; a complex chip with many hundreds of process steps can take months to manufacture. The latency of design/revision cycle means manufacturers are always doing everything they can not to overproduce.
    - panarky 3y ago
      The chip shortage lasted longer than you'd expect because everyone from end users to intermediaries has been hoarding them. It's like the covid toilet paper shortage, even if you keep producing a thing at the same rate, stockpiling creates shortages which stimulate even more stockpiling. When that eventually reverses, expect a temporary glut.
    - xw4002 3y ago
      > a complex chip with many hundreds of process steps can take months to manufacture. "Three months, 700 steps" for the GlobalFoundries Fab in Malta, N.Y. https://www.seattletimes.com/business/technology/three-months-700-steps-why-it-takes-so-long-to-produce-a-computer-chip/ https://www.seattletimes.com/business/technology/three-month...
- pwarner 3y ago
  Very possible that this is a factor, it's very hard to sort out. I see execs and investors are nervous. Is it the bullwhip effect or am I seeing a real increase or decrease? You'll know looking back in a few years!
- cs702 3y ago
  I certainly hope you're right. Keep in mind: TSMC is entrenched in a lot of markets characterized by short lead times (say, < 1 month), and a 10% drop is a lot more than anyone -- including the company -- was expecting. Sometime ago I recall seeing charts showing that changes in TSMC's annual revenues are highly correlated with measures of global economic activity such as changes in Apple's global revenues and changes in global GDP.
  - bbatsell 3y ago
    Could you elaborate on what you’re referring to? I’m certainly not an expert, but my understanding was that the vast, vast majority of TSMC’s revenue comes from production of completely custom wafers on newer nodes, and I’m hard pressed to think of something in the industry with _longer_ lead times.
    - cs702 3y ago
      I was referring to lead time on orders for existing products, i.e., those for which TSMC already has manufacturing capacity online, like current iPhone chips. I wasn't referring to the time it takes to go from design to manufacturing!
      - panarky 3y ago
        In addition to the bullwhip effect, and the unwinding of stockpiling, there's probably some real reduction of demand, and that's probably mostly from China's failure to bounce back to pre-covid GDP.
  - ajb 3y ago
    During the shortage lead time for many semiconductor products went through the roof, so it would make sense that there has been at least some stockpiling. Probably you're right that that doesn't affect top tier products which are the bulk of the revenue, because those are the ones that got preferential access to fab capacity. Whether the stockpiling affected a big enough fraction of revenue to cause this effect is not something I have access to the data to know, so like you I am merely hoping that this is the explanation.
- lamontcg 3y ago
  Both explanations are probably correctly. This is a bullwhip effect, but that does cause a real build up in inventories and contraction in demand during the down part of the cycle. And this will be concurrent with the higher rate environment and contraction in homebuilding and other sectors caused by Fed policy. And so the TSMC warning is likely is forecasting a brewing recession, precipitated in part due to bullwhip effects.
jrockway 3y ago
I don't think that's true. If my BOM costs go down by 10%, I don't need to charge any less money for my product. If Apple could build an iPhone for 1 cent, why wouldn't they still charge $1000 for it? They can say it's how much iOS costs or whatever. (And hey, use the extra profit to hire more tax-paying iOS developers, making iOS even more valuable.)
- cjrp 3y ago
  I think the point is why has revenue dropped 10% for TSMC if everything downstream is going gangbusters? Doesn't it point to a drop in demand for chips, and therefore the retail devices they go inside?
  - gtirloni 3y ago
    If downstream things have gone to shit already, why the prediction that a crisis will be in the _future_? TSMC's revenue grew too much during the pandemic. It's just normal it should contract when things go back to normal.
    - cjrp 3y ago
      Potentially this is a tipping point for the things downstream. Honestly I’m just thinking out loud here.
  - nyokodo 3y ago
    > Doesn't it point to a drop in demand for chips Yes, but in isolation it isn't evidence of an economic downturn in general. It is evidence of the whiplash of consumer demand shifting during COVID from services to goods and back again along with the cost of retooling the industrial plant to match that demand. There's a range of ripple effects across industries that will be ongoing for some time.
  - HWR_14 3y ago
    During COVID, with chip shortages, everything downstream bought as many chips as they could get. Now they have stockpiles to work through.
lnsru 3y ago
Many companies built stock over last years and stoped buying new semiconductors until stock is almost depleted. I am sure it will be fine, no contraction soon. Only semiconductor companies will suffer.
cheriot 3y ago
In addition to inventories like other commenters mention, remember this is a capital intensive business. When chip makers collectively add more capacity than is needed, prices drop (ie revenue drops). It could also be "normalizing" demand as people shift spending from goods to services. The possibility space is much larger than global recession.
- cs702 3y ago
  I hope you're right. Keep in mind: TSMC is entrenched in a lot of markets, and a 10% drop is larger than anyone -- including the company -- was expecting. Sometime ago I recall seeing that changes in TSMC's revenues are pretty highly correlated with measures of global economic activity such as changes in Apple's revenues and changes in global GDP.
ajross 3y ago
> Given that [...] we're going to experience a significant global economic contraction soon. What's with all the doomslinging in modern discourse? No, no, that's not now it works at all. There was a chip shortage just a year ago! Did that plunge us into recession? No, clearly it didn't. Then it was Inflation that was going to kill us all. And it didn't either. Now all of a sudden we're swinging the other way with chips and have a glut, and... now the doom will happen, I guess you're hoping? No. This is a cyclic industry and it's cycling like it always has. A 10% YoY revenue drop isn't anything weird. I found a chart here: look at the bottom YoY numbers and see all the times they were in the red. Remember the unmitigated economic disaster of 2016? Me neither. https://www.macrotrends.net/stocks/charts/TSM/taiwan-semiconductor-manufacturing/revenue https://www.macrotrends.net/stocks/charts/TSM/taiwan-semicon...
- mschuster91 3y ago
  > What's with all the doomslinging in modern discourse? Because public trust in the ability of governments to manage a crisis has gone completely fucking downhill, worldwide: - the US couldn't even manage to beat a gang of cave-living Islamist terrorists using kalashnikovs in 20 years, and had to flee the country in shame - we went through three years of a worldwide pandemic, then panicked governments acted like it was all over due to pressure by the far right - and yet, despite mounting evidence of millions of cases of long covid and almost all nation leaders silently insisting on covid tests prior to meetings, for the citizens it's a free for all for the virus, at the risk of disabled people and other at-risk groups. Governments didn't do anything to meaningfully curb the onslaught of propaganda as well. - compared to prior environmental threats such as CFC coolants or lead, no one is doing anything meaningful (i.e. something that actually costs Big Money some wealth) against climate change. Instead, again, climate change denial runs rampant. - we've got Russia invading Ukraine in a land-grab and it took us a year of brutal slaughter, rape and terrorism to send a handful of fucking tanks, and fighter jets are still many months away. I'm not advocating to glass the Kremlin, but NATO could do way way WAY more to stop this shit. - China has been stealing Western IP for decades and used obvious price dumping to destroy our economies, and yet our politicians and companies keep kneeling before Xi despite the constant Chinese saber rattling against Taiwan - housing prices and cost of living have been exploding for years and no one cares, despite tent cities of homeless in every major warm US city and people defecating on the streets because they don't have any safe place. - on top of all of that (literal) shit, Nazis and other authoritarian politicians are back worldwide, to a large degree financed by the Kremlin, and guess what, politicians aren't taking care about that either, instead they let their parties be taken over by them or refuse to fight and go under in elections. - ETA: And in the US, people will probably have the choice come next election between someone who should have retired from politics decades ago on the Democrat side and on the Republican side either someone who has incited a putsch, stole top-secret documents and hid them in a fucking toilet or someone who thinks it's a good idea to take on Disney of all companies or to fight everyone who doesn't think like him as "woke" and wants to eradicate them. JFC America what are you doing? So yes, it's completely rational for people to assume doom when politicians don't give us any reason to hope that the situation will improve. It makes more sense to prepare for the worst case because it's increasingly more likely.
HillRat 3y ago
Inventories are stacking up after the COVID supply chain crisis, so automotive and durable goods manufacturers are slowing down on input orders, even though demand for their products remains high. There's definitely a PC/smartphone demand slump (both sectors down around 10% YoY for Q2 2023), so add those two data points and factor in potential supply increases down the road due to CHIPS Act effects, and you're looking at decreased demand and increased price pressures for an uncertain amount of time. Given just how contradictory the broader market data is regarding the "soft landing vs minicession" debate, TSMC's specific revenue issues shouldn't be assumed to be dispositive.
- somewhat_drunk 3y ago
  New car inventories are increasing as well. Anecdotally, the US auto industry seems to be preparing for a slowdown. https://www.coxautoinc.com/market-insights/new-vehicle-inventory-may-2023/ https://www.coxautoinc.com/market-insights/new-vehicle-inven...
Analemma_ 3y ago
This is a 10% decline from the large increase over the baseline trend that we saw post-covid when people had tons of disposable income. It's just a return to baseline and no big deal.
kevin_thibedeau 3y ago
Most consumer electronics don't need ICs built on cutting edge process nodes. Most of the global population of humans have more pressing needs than acquiring the latest gewgaws that can upstage last years models.
daniel-cussen 3y ago
[flagged]
- HWR_14 3y ago
  > "Taiwan embraces capitalism, we have a monopoly in the surely insignificant niche of the most insignificantly sized transistors, we do not seek monopoly rents but we'll take your money if that's what we must do to let the system self-correct.". Basically turned their back on capitalism as a concept unto itself I am very interested in hearing your description of capitalism that does not include taking windfall profits when demand shoots up and some examples of it in the real world.
tim333 3y ago
10% decline over the previous year, which was a boom year due to shortages after covid. See this article back from distant Jan 23 for example "Timeline: causes of the global semiconductor shortage" https://supplychaindigital.com/top10/timeline-causes-of-the-global-semiconductor-shortage https://supplychaindigital.com/top10/timeline-causes-of-the-...
gargablegar 3y ago
We have been seeing a significant global contraction for the last year lol. It’s still going. We just all riding on the post covid backlog and over order.
ksec 3y ago
>we're going to experience a significant global economic contraction soon 1. YoY 10% expected decline from the largest increase in recent history. i.e 2022 was an anomaly. 2. No it is not BULL WHIP effect. Has relatively little to do with it. The problem was with commodity chips, one should read into UMC and SMIC. 3. Nvidia, for the rest of the year is still capacity limited. 4. Samsung Foundry took some market to fill their capacity gap in other sectors. Although I doubt that is even 3% of the expected TSMC revenue decline. 5. In all likely hood it just means their Customer are reluctant to pre-book much capacity and would want the flexibility to increase order when needed. ( Usual Strategy ) 6. It is likely China's volume is much worst than everyone expected.

by cs702 3y ago

ajb 3y ago

This isn't necessarily representative of the economics of downstream sectors, because it's probably caused by the Bullwhip Effect[1] like the recent semiconductor shortage. "The bullwhip effect refers to a scenario in which small changes in demand at the retail end of the supply chain become amplified when moving up the supply chain from the retail end to the manufacturing end." [1] https://www.investopedia.com/bullwhip-effect-definition-5499228 https://www.investopedia.com/bullwhip-effect-definition-5499...

willis936 3y ago
That would imply there is a surplus somewhere, which there's not. There's a reduction in orders from a reduction in demand regardless of the state of the buffer.
- guestbest 3y ago
  Their is a surplus of labor.
- gorkish 3y ago
  It's still the same effect. Supply doesn't have to overshoot. Computer chips aren't just stamped out instantly; a complex chip with many hundreds of process steps can take months to manufacture. The latency of design/revision cycle means manufacturers are always doing everything they can not to overproduce.
  - panarky 3y ago
    The chip shortage lasted longer than you'd expect because everyone from end users to intermediaries has been hoarding them. It's like the covid toilet paper shortage, even if you keep producing a thing at the same rate, stockpiling creates shortages which stimulate even more stockpiling. When that eventually reverses, expect a temporary glut.
  - xw4002 3y ago
    > a complex chip with many hundreds of process steps can take months to manufacture. "Three months, 700 steps" for the GlobalFoundries Fab in Malta, N.Y. https://www.seattletimes.com/business/technology/three-months-700-steps-why-it-takes-so-long-to-produce-a-computer-chip/ https://www.seattletimes.com/business/technology/three-month...
pwarner 3y ago
Very possible that this is a factor, it's very hard to sort out. I see execs and investors are nervous. Is it the bullwhip effect or am I seeing a real increase or decrease? You'll know looking back in a few years!
cs702 3y ago
I certainly hope you're right. Keep in mind: TSMC is entrenched in a lot of markets characterized by short lead times (say, < 1 month), and a 10% drop is a lot more than anyone -- including the company -- was expecting. Sometime ago I recall seeing charts showing that changes in TSMC's annual revenues are highly correlated with measures of global economic activity such as changes in Apple's global revenues and changes in global GDP.
- bbatsell 3y ago
  Could you elaborate on what you’re referring to? I’m certainly not an expert, but my understanding was that the vast, vast majority of TSMC’s revenue comes from production of completely custom wafers on newer nodes, and I’m hard pressed to think of something in the industry with _longer_ lead times.
  - cs702 3y ago
    I was referring to lead time on orders for existing products, i.e., those for which TSMC already has manufacturing capacity online, like current iPhone chips. I wasn't referring to the time it takes to go from design to manufacturing!
    - panarky 3y ago
      In addition to the bullwhip effect, and the unwinding of stockpiling, there's probably some real reduction of demand, and that's probably mostly from China's failure to bounce back to pre-covid GDP.
- ajb 3y ago
  During the shortage lead time for many semiconductor products went through the roof, so it would make sense that there has been at least some stockpiling. Probably you're right that that doesn't affect top tier products which are the bulk of the revenue, because those are the ones that got preferential access to fab capacity. Whether the stockpiling affected a big enough fraction of revenue to cause this effect is not something I have access to the data to know, so like you I am merely hoping that this is the explanation.
lamontcg 3y ago
Both explanations are probably correctly. This is a bullwhip effect, but that does cause a real build up in inventories and contraction in demand during the down part of the cycle. And this will be concurrent with the higher rate environment and contraction in homebuilding and other sectors caused by Fed policy. And so the TSMC warning is likely is forecasting a brewing recession, precipitated in part due to bullwhip effects.

jrockway 3y ago

I don't think that's true. If my BOM costs go down by 10%, I don't need to charge any less money for my product. If Apple could build an iPhone for 1 cent, why wouldn't they still charge $1000 for it? They can say it's how much iOS costs or whatever. (And hey, use the extra profit to hire more tax-paying iOS developers, making iOS even more valuable.)

cjrp 3y ago
I think the point is why has revenue dropped 10% for TSMC if everything downstream is going gangbusters? Doesn't it point to a drop in demand for chips, and therefore the retail devices they go inside?
- gtirloni 3y ago
  If downstream things have gone to shit already, why the prediction that a crisis will be in the _future_? TSMC's revenue grew too much during the pandemic. It's just normal it should contract when things go back to normal.
  - cjrp 3y ago
    Potentially this is a tipping point for the things downstream. Honestly I’m just thinking out loud here.
- nyokodo 3y ago
  > Doesn't it point to a drop in demand for chips Yes, but in isolation it isn't evidence of an economic downturn in general. It is evidence of the whiplash of consumer demand shifting during COVID from services to goods and back again along with the cost of retooling the industrial plant to match that demand. There's a range of ripple effects across industries that will be ongoing for some time.
- HWR_14 3y ago
  During COVID, with chip shortages, everything downstream bought as many chips as they could get. Now they have stockpiles to work through.

lnsru 3y ago

Many companies built stock over last years and stoped buying new semiconductors until stock is almost depleted. I am sure it will be fine, no contraction soon. Only semiconductor companies will suffer.

cheriot 3y ago

In addition to inventories like other commenters mention, remember this is a capital intensive business. When chip makers collectively add more capacity than is needed, prices drop (ie revenue drops). It could also be "normalizing" demand as people shift spending from goods to services. The possibility space is much larger than global recession.

cs702 3y ago
I hope you're right. Keep in mind: TSMC is entrenched in a lot of markets, and a 10% drop is larger than anyone -- including the company -- was expecting. Sometime ago I recall seeing that changes in TSMC's revenues are pretty highly correlated with measures of global economic activity such as changes in Apple's revenues and changes in global GDP.

ajross 3y ago

> Given that [...] we're going to experience a significant global economic contraction soon. What's with all the doomslinging in modern discourse? No, no, that's not now it works at all. There was a chip shortage just a year ago! Did that plunge us into recession? No, clearly it didn't. Then it was Inflation that was going to kill us all. And it didn't either. Now all of a sudden we're swinging the other way with chips and have a glut, and... now the doom will happen, I guess you're hoping? No. This is a cyclic industry and it's cycling like it always has. A 10% YoY revenue drop isn't anything weird. I found a chart here: look at the bottom YoY numbers and see all the times they were in the red. Remember the unmitigated economic disaster of 2016? Me neither. https://www.macrotrends.net/stocks/charts/TSM/taiwan-semiconductor-manufacturing/revenue https://www.macrotrends.net/stocks/charts/TSM/taiwan-semicon...

mschuster91 3y ago
> What's with all the doomslinging in modern discourse? Because public trust in the ability of governments to manage a crisis has gone completely fucking downhill, worldwide: - the US couldn't even manage to beat a gang of cave-living Islamist terrorists using kalashnikovs in 20 years, and had to flee the country in shame - we went through three years of a worldwide pandemic, then panicked governments acted like it was all over due to pressure by the far right - and yet, despite mounting evidence of millions of cases of long covid and almost all nation leaders silently insisting on covid tests prior to meetings, for the citizens it's a free for all for the virus, at the risk of disabled people and other at-risk groups. Governments didn't do anything to meaningfully curb the onslaught of propaganda as well. - compared to prior environmental threats such as CFC coolants or lead, no one is doing anything meaningful (i.e. something that actually costs Big Money some wealth) against climate change. Instead, again, climate change denial runs rampant. - we've got Russia invading Ukraine in a land-grab and it took us a year of brutal slaughter, rape and terrorism to send a handful of fucking tanks, and fighter jets are still many months away. I'm not advocating to glass the Kremlin, but NATO could do way way WAY more to stop this shit. - China has been stealing Western IP for decades and used obvious price dumping to destroy our economies, and yet our politicians and companies keep kneeling before Xi despite the constant Chinese saber rattling against Taiwan - housing prices and cost of living have been exploding for years and no one cares, despite tent cities of homeless in every major warm US city and people defecating on the streets because they don't have any safe place. - on top of all of that (literal) shit, Nazis and other authoritarian politicians are back worldwide, to a large degree financed by the Kremlin, and guess what, politicians aren't taking care about that either, instead they let their parties be taken over by them or refuse to fight and go under in elections. - ETA: And in the US, people will probably have the choice come next election between someone who should have retired from politics decades ago on the Democrat side and on the Republican side either someone who has incited a putsch, stole top-secret documents and hid them in a fucking toilet or someone who thinks it's a good idea to take on Disney of all companies or to fight everyone who doesn't think like him as "woke" and wants to eradicate them. JFC America what are you doing? So yes, it's completely rational for people to assume doom when politicians don't give us any reason to hope that the situation will improve. It makes more sense to prepare for the worst case because it's increasingly more likely.

HillRat 3y ago

Inventories are stacking up after the COVID supply chain crisis, so automotive and durable goods manufacturers are slowing down on input orders, even though demand for their products remains high. There's definitely a PC/smartphone demand slump (both sectors down around 10% YoY for Q2 2023), so add those two data points and factor in potential supply increases down the road due to CHIPS Act effects, and you're looking at decreased demand and increased price pressures for an uncertain amount of time. Given just how contradictory the broader market data is regarding the "soft landing vs minicession" debate, TSMC's specific revenue issues shouldn't be assumed to be dispositive.

somewhat_drunk 3y ago
New car inventories are increasing as well. Anecdotally, the US auto industry seems to be preparing for a slowdown. https://www.coxautoinc.com/market-insights/new-vehicle-inventory-may-2023/ https://www.coxautoinc.com/market-insights/new-vehicle-inven...

Analemma_ 3y ago

This is a 10% decline from the large increase over the baseline trend that we saw post-covid when people had tons of disposable income. It's just a return to baseline and no big deal.

kevin_thibedeau 3y ago

Most consumer electronics don't need ICs built on cutting edge process nodes. Most of the global population of humans have more pressing needs than acquiring the latest gewgaws that can upstage last years models.

daniel-cussen 3y ago

[flagged]

HWR_14 3y ago
> "Taiwan embraces capitalism, we have a monopoly in the surely insignificant niche of the most insignificantly sized transistors, we do not seek monopoly rents but we'll take your money if that's what we must do to let the system self-correct.". Basically turned their back on capitalism as a concept unto itself I am very interested in hearing your description of capitalism that does not include taking windfall profits when demand shoots up and some examples of it in the real world.

tim333 3y ago

10% decline over the previous year, which was a boom year due to shortages after covid. See this article back from distant Jan 23 for example "Timeline: causes of the global semiconductor shortage" https://supplychaindigital.com/top10/timeline-causes-of-the-global-semiconductor-shortage https://supplychaindigital.com/top10/timeline-causes-of-the-...

gargablegar 3y ago

We have been seeing a significant global contraction for the last year lol. It’s still going. We just all riding on the post covid backlog and over order.

ksec 3y ago

>we're going to experience a significant global economic contraction soon 1. YoY 10% expected decline from the largest increase in recent history. i.e 2022 was an anomaly. 2. No it is not BULL WHIP effect. Has relatively little to do with it. The problem was with commodity chips, one should read into UMC and SMIC. 3. Nvidia, for the rest of the year is still capacity limited. 4. Samsung Foundry took some market to fill their capacity gap in other sectors. Although I doubt that is even 3% of the expected TSMC revenue decline. 5. In all likely hood it just means their Customer are reluctant to pre-book much capacity and would want the flexibility to increase order when needed. ( Usual Strategy ) 6. It is likely China's volume is much worst than everyone expected.