The news: TSMC forecast sales would tumble 16% in Q2, reflecting the continued slowdown in the tech sector, per Yahoo.

Why it’s worth watching: The world's largest chipmaker said industry inventories were higher than expected and would only rebalance to a healthier level in Q3.

• Much like the rest of the industry, TSMC is grappling with uncertain electronics demand in 2023 as budgets tighten to deal with soaring inflation and a potential global recession.
• TSMC, which supplies chips for Apple, AMD, Amazon, NVIDIA, and Google posted its first revenue drop in nearly four years in Q1 per The Wall Street Journal.
• The company and its performance are a bellwether for the technology and consumer electronics sector, where the focus has shifted dramatically from pandemic shortages to an oversupply of silicon and other components.
• “Moving into Q2 2023, we expect our business to continue to be impacted by customers' further inventory adjustment," CFO Wendell Huang said Thursday.

What’s next? TSMC has committed to building various chip factories in the US, Japan, and Europe, on top of investing TWD 1.86 trillion ($60.4 billion) in a new Taiwanese factory.

• TSMC is applying for subsidies from the US Chips Act, but its efforts could be confounded by the proviso that firms taking US funds won’t expand their chip manufacturing in “countries of concern” like China and Russia for 10 years.
• The stipulations could cause chip manufacturers like Samsung, TSMC, GlobalFoundries, Qualcomm, and Micron to reconsider the long-term benefit of chip subsidies.
• TSMC is in "constant communication with the U.S. government" to understand the specifics regarding subsidies, Huang said.

Our take: 10 years is an eternity in terms of innovation. Some of these chipmakers could seek out incentives elsewhere or abandon factory expansion plans as they try to manage short-term slowdowns and chip oversupply.

This article originally appeared in Insider Intelligence's Connectivity & Tech Briefing—a daily recap of top stories reshaping the technology industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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