Semiconductor industry leaders Intel (NASDAQ:INTC), Broadcom (NASDAQ:AVGO), and Applied Materials (NASDAQ:AMAT) faced significant stock price declines on Friday. The losses reached 2.7%, 2.9%, and 4.7% respectively at their lowest points during the day, following reports that Taiwan Semiconductor Manufacturing (TSMC) requested equipment suppliers to postpone or delay new orders.
These companies, which have seen their shares rise by approximately 50% for Intel and Applied Materials, and about 58% for Broadcom this year, experienced a sudden pullback due to concerns over TSMC's actions. As the world's largest outsourced chip foundry, TSMC's decisions often reflect the health of the semiconductor industry. The company produces many of Broadcom's chips, some non-CPU chips for Intel, and is a significant customer for Applied Materials' semiconductor manufacturing equipment.
The reported delays primarily concern TSMC's new fabrication plant in Arizona, which has been affected by delays and supply shortages. However, sources also indicated that TSMC is apprehensive about demand, suggesting it's not solely a supply issue. Despite this setback, Applied Materials and other suppliers reportedly expect these delays to be temporary.
In July, TSMC had communicated a slowdown to the market during an earnings call with analysts. The company stated that it expected its capital expenditures to be at the lower end of its forecasted $32 billion to $36 billion range due to soft demand and careful inventory management by customers.
Despite the increasing demand for artificial intelligence chips manufactured by TSMC, these only contributed to about 6% of TSMC's total revenue last quarter. The slowdowns in larger PC, handset, and industrial sectors, particularly in China, are having an overall dampening effect despite robust AI demand.
Speculation suggests that TSMC may be experiencing decreased demand due to China's largest foundry, Semiconductor Manufacturing International Corporation (SMIC), gaining some market share. SMIC recently manufactured a homegrown 7 nanometer chip for Huawei's Mate 60 phone, which was unexpected given U.S. sanctions.
Despite the current downturn, there are reasons for long-term optimism about Intel, Broadcom, and Applied Materials. Applied Materials has demonstrated resilience this year with diversification and smart investments in AI and electrification. Broadcom could see potential demand opportunities in AI computing networking, while Intel's turnaround under CEO Pat Gelsinger seems promising. Increased U.S.-China tensions could paradoxically benefit Intel.
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