Discussion on TSM's CoWos reduction

The trigger for the chip stock selloff was the previous $Taiwan Semiconductor Manufacturing(TSM)$ CoWoS adjustment, which the market has been led to believe was an NVDA order cut.

There are actually two premises to understand:

1. Big tech companies (Mag 6) in the B card orders to Nvidia, because of the fear of capacity problems, often under the double (double orders), as a way to get more orders in the earliest stage, to be restored to the production capacity, may be canceled duplicate orders (expected this year Q3);

2. NVIDIA tends to place double (or even multiple) orders when giving orders to TSMC, also in order to obtain more resources, which is also a game of upstream and downstream;

First of all, TSMC will not expand production to the full extent of customer demand, but will retain a certain amount of "cut-order space" when expanding production.This means that TSMC will not over-fulfill its customers' capacity needs, with the aim of maintaining a state of oversupply in the market.Doing so will allow TSMC to occupy a more favorable position in negotiations with customers and enhance its bargaining power.

Secondly, customers, for their part, will overstate their demand to "book capacity", that is, reserve capacity, at the outset in order to have room to cut prices in the follow-up.Because once the production line is turned on, depreciation can't be stopped, so customers hope to get a more favorable price in subsequent transactions with TSMC in this way.

And this CoWoS cut order, there is this part of the reason.

However, industry bigwig Ming-Chi Kuo (Ming-Chi Kuo) said he thinks TSMC CoWoS expansion plan has not changed since last year's Q4 (370,000 pieces)

1. The 400,000 wafers rumored by the market was wrong and the market expectation was too high;

2. TSMC has a capacity ceiling, and will ask NVDA and other customers to provide more realistic demand data;

3. NVIDIA has B200 and B300 conversion node in advance, may change the production plan, but not "cut orders".

At the same time, in addition to NVIDIA, other ASIC companies have been rumored to "cut orders", including $Amazon.com(AMZN)$ Trainium2, as well as $Marvell Technology(MRVL)$ and other companies.companies.

My view is that

1. Part of the original decline in the industry, such as automotive, orders are expected to shrink;

2. As the front section of the supply chain, TSMC, because of the relative passivity, so customers are required to provide more accurate 12-month rolling forecasts, to reduce the "false orders" crowded capacity, indicating that the previous "repeat orders" may further need to be squeezed out of the water;

3. The impact on TSMC is not significant, capacity will remain "saturated" for a long time to come;

4. Little impact on NVIDIA, even if Mag 6 and other large companies to cut budgets, but instead make the previous capacity due to the lack of orders can not be scheduled for other technology companies have the opportunity to obtain orders, NVIDIA capacity is still saturated, but on the other due to the lack of production capacity and the late demand for overflow of the company has a greater impact; $ U.S. Supermicro Corporation (AMD)$