By Sheherzad Jamal

TSMC Stocks Tumble While Revenue Climbs

TSMC stock prices in July reached their lowest value in the last two years at NT$433 per share. Goldman Sachs lowered its initial stock price target from NT$912 to NT$857 per share, noting that high inflation and a higher base period in 2022 are likely to influence demand and pose fresh challenges in the coming year. Analysts attribute the decline in stock prices to falling foreign investment as many investors have decided to shed TSMC stocks in an effort to cut their losses. Fears of an impending recession may also have influenced their approach. The Taiwan Stock Exchange (TWSE) recorded a sharp drop in foreign investment and the sale of 140,000 shares of TSMC stock in June and July.

In a recent Goldman Sachs report, analyst Bruce Lu noted that given slowing demand, the need to clear inventory, and changes to TSMC’s 8-nanometer and 12-nanometer capacity utilization rate, the company is unlikely to reach its projected annual revenue targets. He predicted that the annual revenue growth rate will likely decrease to 14.2% from an earlier projection of 19.3%. Additionally, canceled orders for 5-nanometer and 7-nanometer chips by companies such as AMD and Nvidia due to reduced demand is expected to harm revenue. Fellow analyst Andrew Lu also argued that if TSMC’s 3-nanometer chips are delayed, they may not be ready in time to be used in new releases from Apple. This in turn may also delay the manufacture of 2-nanometer chips, allowing TSMC’s competitors to narrow the current gap.

Nevertheless, TSMC remains optimistic about its projections for the upcoming year, raising its revenue forecast following record quarterly profits of NT$237 billion (US$7.93 billion) for Q2 2022, an increase of 76.4% compared to last year and 16.9% from Q1.

Despite Pressures, Growth Still Likely

Amid ongoing high global inflation and severe geopolitical tensions, S&P Global Ratings forecast Taiwan’s GDP growth this year at 2.8%, less than half of its projected growth rate of 6.6% last year. Taiwan Ratings Corp., S&P’s Taiwan affiliate, noted that despite the sharp decrease, the projection was still quite impressive compared to other countries, attributing Taiwan’s continued healthy economic growth to high demand in the electronics sector. However, the rising cost of raw materials, energy shortages, and other supply disruptions may pose significant financial challenges in the coming months, especially given the industrial sector’s reliance on imported oil and gas.

Economic recovery was somewhat hindered by low domestic consumer spending, as well as demand and consumer confidence, which remain below pre-pandemic levels. Taiwan Ratings increased its forecast for consumer price gains to 3.2%, predicting that the Central Bank would raise its discount rate to 1.75%. This in turn is likely to have severe implications for smaller enterprises and influence payment affordability. However, Fitch Ratings noted that despite interest rate increases, particularly those affecting property-related lending, local banks remain stable in their operations and credit profiles.

Taiwan maintained a robust trade performance in May, with exports increasing significantly by 12.5% from the same month last year. May marked the 15th consecutive month of double-digit growth in both exports and imports, with the increase in exports resulting mainly from continued demand for electronic parts. Imports increased in May by 26.68% from a year earlier. Growth in overall trade resulted in a surplus of US$23 billion, a year-on-year decrease of 12%, due to the inflated cost of commodities in the first half.

Inflation continued to exert significant economic pressure in early June, reaching its highest point since August 2008. The government now faces the challenge of how to increase interest rates this year without negatively impacting domestic economic growth. The Consumer Price Index (CPI), which reached 3.59% in June, has remained above 3% for the last four months, exceeding the Central Bank’s alert threshold of more than 2%. However, observers such as Meng Chye Phoo, a senior economist at Standard Chartered Plc., predict that the CPI is likely reaching its peak.

Foreign portfolio investors have continued to sell shares, with NT$954.98 billion (US$31.9 billion) of local shares sold between the beginning of this year and mid-July. The market capitalization of foreign shares came to NT$18 trillion, representing about 40% of total market capitalization following the selloff. In particular, Taiwan Semiconductor Manufacturing Co. (TSMC) saw a drop in its foreign shareholding, likely the result of foreign investors trying to cut their losses amid growing fears of a possible recession. Taiwan also saw an increase in foreign exchange reserves in May following higher returns on the Central Bank’s forex reserve portfolio. Forex reserves that month totaled US$548.85 billion, rising US$3.79 billion compared to the end of April.

Taiwan Seeks To Build Up Space Industry

Following government efforts to rapidly develop Taiwan’s space industry through collaboration with leaders in space innovation and technology, a delegation from the Ministry of Science and Technology (MOST) visited the Space Exploration Technologies Corp. (SpaceX) and Virgin Orbit Holdings Inc. in the U.S. in June. Headed by Minister Wu Tsung-tsong, the delegation consisted of 15 members, including experts and other personnel from the National Space Organization under the National Applied Research Laboratory.

Wu noted that Taiwanese manufacturers are key suppliers for SpaceX and its Starlink internet constellation.

The trip reflects a growing effort to develop Taiwan’s own space industry following the Space Development Act passed earlier this year. That law covers a variety of space initiatives, including the creation, management, launch, and objectives of space missions. Additionally, it attempts to regulate space activities to ensure that they remain consistent within a broader framework of international, environmental, and national law.