Taiwan Semiconductor Manufacturing Co. Ltd. today posted strong financial results for the fourth quarter but cautioned that chip demand will slow in the first half of 2023.

TSMC is the world’s largest contract chip manufacturer. It makes Nvidia Corp.’s top-end H100 data center graphics cards, the A15 Bionic chip that powers the latest iPhones and other advanced processors. As of 2020, the company manufactured more than 12 million chip wafers annually.

Revenue rose 43% year-over-year in the fourth quarter, to 625.53 billion New Taiwan dollars. In U.S. dollars, its revenue grew 26.7% and reached $19.93 billion. TSMC had projected sales of $19.9 billion to $20.7 billion for the quarter. 

The company’s profit in the three months ended Dec. 31 surpassed analyst expectations after jumping 78% from a year ago, to NT$295.9 billion. The Refinitiv consensus estimate projected NT$289.44 billion. In U.S. dollars, fourth-quarter profit amounted to $9.72 billion.

The chipmaker’s 2022 fiscal year was its best on record. It generated a net profit of NT$1.017 trillion on NT$2.264 trillion in revenue during the 12 months ended Dec. 31.

TSMC expects chip sales to slow in the current quarter. It’s projecting revenue of $16.7 billion to $17.5 billion for the three months ended March 31, compared with $17.57 billion a year earlier. The midpoint of the guidance would represent a 14% sales decrease compared with the fourth quarter.

The company expects to close the first half of fiscal 2023 with a year-over-year revenue decline in the mid to high single digits. In response, it intends to reduce its 2023 capital expenditures to between $32 million and $36 billion from $36.3 billion during 2022. But despite the slowing customer demand, it expects to end the fiscal year with a slight increase in revenue.

“We forecast the semiconductor cycle to bottom sometime in first half and see a recovery in second half 2023,” said Chief Executive Officer C.C. Wei.

TSMC is expanding its manufacturing capacity to meet future chip demand. As part of the effort, the company is building a $8.4 billion fab in southern Japan that will make chips for vehicles and other systems. Wei stated today that it’s considering building a second fab in Japan.

The CEO also confirmed recent reports that the company may build a fab in Europe. The fab would make chips for automakers. Last month, it was reported that the facility could be built in Dresden, Germany, and would produce chips based on 22-nanometer and 28-nanometer manufacturing technologies.

A few weeks before the report, TSMC announced a $40 billion plan to build two cutting-edge fabs in Arizona. The plan quadruples a previously announced $10 billion investment. The first fab it plans to build as part of the initiative will make four-nanometer chips, while the second will use the company’s latest three-nanometer technology.

TSMC began mass-producing three-nanometer processors late last month. The company estimates the new processors will provide up to more than 15% performance than five-nanometer silicon. Additionally, the technology promises to provide an up to 35% improvement in power efficiency. 

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