Published - January 13, 2023 @ 11:35 AM (EET)

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Citing weak demand, Taiwanese Semiconductor Manufacturing Co. (NYSE:TSM) said Thursday that it expects revenue in the current quarter to drop as much as 5% and could cut this year's capital expenditures compared with the previous year.

While TSMC executives addressed concerns about a prolonged chip crisis at its earnings announcement, shares of TSMC surged as much as 6% on Friday after investors bet the chipmaker would be among the first to emerge from an industry downturn in 2023.

Why it matters: The world's largest contract chip maker and the exclusive supplier of Apple Inc.'s Silicon chips for iPhones and Macs has the technology and scale to weather a slowdown better than most of its peers.

WHAT HAPPENED

Having reported record full-year revenue in 2022, TSMC said Thursday that it expected to post between $16.7 billion and $17.5 billion in revenue in the current quarter, compared with $17.57 billion from the year-ago period.

According to S&P Global Market Intelligence data, the last time the company's quarterly revenue declined year-over-year was in the first quarter of 2019.

The bearish outlook follows a forecast-beating 78% jump in fourth-quarter profit, underscoring the sharp economic slowdown that is worsening as decades-high inflation and rising interest rates loom.

Still - signaling the beginnings of a recovery, TSMC forecasted a small annual revenue growth in the latter half of the year and reiterated the company's plans to ramp up next-generation 2-nanometer chips to meet consumer demand for silicon.

In addition, Chief Executive CC Wei said he forecasts a sharp drop in inventory in the semiconductor supply chain through the first half of 2023.

The chipmaker said it sees capital expenditure in 2023 to decrease from $36.3 billion in 2022 to between $32-36 billion.  For October through December, TSMC booked a record net profit of $9.72 billion, while revenue climbed 26.7% to $19.93 billion.

Chief Financial Officer Wendell Huang said in a briefing,
"Given the near-term uncertainties, we continue to manage our business prudently and tighten up our capital spending where appropriate".

Price Action: Based on 12 Analysts' ratings covered by Refinitv, the stock is a Strong Buy (9 Buys, 3 Holds).  The Average price target of $96.52 implies an upside potential of 12.59%.