TSMC Delays ASML Chip Equipment Delivery Amid Market Uncertainty

In a move that underscores the volatile landscape of the semiconductor industry, Taiwan Semiconductor Manufacturing Company (TSMC), the world's leading producer of advanced semiconductors, has instructed its principal suppliers to defer the delivery of critical chipmaking equipment. The directive primarily affects ASML, a key supplier, as TSMC grapples with delays in the construction of its $40 billion chip-manufacturing facility in Arizona, USA.

Amidst a global semiconductor shortage exacerbated by geopolitical tensions, TSMC had committed to establishing new fabrication plants in the United States. However, the company is now reassessing its strategy due to a confluence of factors: rising inflation, the ongoing conflict in Ukraine, and escalating tensions between the U.S. and China.

Consequently, TSMC is becoming increasingly cautious about customer demand and is looking to mitigate its escalating costs.

ASML, the sole global manufacturer of advanced extreme ultraviolet lithography machines (EUV), anticipates a short-term dip in demand. TSMC CEO CC Wei highlighted weaker economic conditions and a sluggish recovery in China as contributing factors. Wei also pointed out that the end-market demand for products like smartphones is waning, prompting the company to exercise greater control over its inventory.

Although TSMC was not explicitly named by ASML, it was implicitly understood that the Taiwanese semiconductor giant was the customer in question. ASML CEO Peter Wennink indicated that some orders for high-end tools had been deferred due to fabrication plant readiness issues in both Taiwan and Arizona.

ASML, now Europe's most valuable technology company, is operating at full capacity and expects its overall sales to grow by 30% this year. However, the company is not immune to broader market trends. While there is a surge in demand for AI server chips, such as those produced by Nvidia, the addressable market for these chips is not as expansive as the smartphone market, which is experiencing a significant slowdown.

This development coincides with China's directive to its government employees to cease using iPhones, which rely on chips manufactured by TSMC. Additionally, Huawei, a former major client of TSMC, has unveiled a new 7nm chip produced by Chinese fab SMIC. This shift comes in the wake of U.S. trade sanctions that forced TSMC to sever its ties with Huawei, which had ascended to become the world's largest smartphone seller by mid-2020. Although U.S. sanctions have severely impacted Huawei's smartphone business, the brand continues to enjoy immense popularity in China, the world's largest smartphone market.

The unveiling of Huawei's Kirin chip also signals a potential long-term cessation of its business with TSMC, as the company had previously sourced Qualcomm processors manufactured by the Taiwanese firm.

In summary, TSMC's decision to delay equipment orders from ASML reflects the semiconductor industry's complex interplay of supply, demand, and geopolitical factors, adding another layer of uncertainty to an already turbulent market.