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TSMC’s earnings for its third quarter of 2023 saw the firm benefit from higher smartphone demand that managed to reverse some of the impact of a slowdown in the chip sector that has consumed three out of the four quarters this year. The results saw revenue drop annually, with a small sequential growth proving to be more seasonal, as a broader annual revenue drop indicated that the chip sector had contracted since 2023 when orders were flowing to foundries as designers anticipated high demand levels to sustain.
However, as opposed to the second quarter earnings, which saw TSMC’s management strike a sobering tone, the firm’s earnings call for the third quarter was a bit more upbeat, and fresh coverage from Citigroup adds to this by explaining that inventory replenishment has finally started to pick up in the chip sector.
Demand From High Performance (HPC) & AI Products Will Act As a Catalyst For the Chip Sector Believes Citi
TSMC’s earnings report saw HPC remain the largest revenue driver for the segment, and judging today’s report courtesy of UDN, it appears that this will remain the case in the future as well. The financial firm believes that HPC and AI chips built with high end manufacturing processes such as 3-nanometer can drive TSMC’srevenue growth at a compounded annual growth rate touching 20%,
Additionally, while Citi keeps TSMC’s share price target at NT$660 along with a Buy rating, the HPC and AI driven catalysts to the chip sector have made it turn more bullish on the prospects of mature nodes. The firm has raised the share price target of United Microelectronics Corporation (UMC) to NT$61 from an earlier NT$56, along with maintaining a Buy rating for the stock.
UMC’s shares closed at NT$48.60 during the latest trading day in Taiwan, while TSMC’s Taiwanese shares currently sit at NT$544 – indicating a sharp upside should the target be realized over due course. UMC is a key supplier for older chip technologies for general purpose tasks.
Additionally, the fab might see more orders for personal computing products in the future, as a report from Reuters suggests that AMD and NVIDIA are looking to launch their PC chips designed with Arm’s microarchitecture to compete with Apple. NVIDIA’s shares closed 3.84% higher today. At the same time, ARM, which recently went public after failing to secure clearance for a merger with NVIDIA, jumped by 4.89% as investors bet that NVIDIA might be able to unlock more market demand for the British firm’s chip IP.
The report speculates that NVIDIA and AMD might have market ready products by 2025, and should this pan out as reported, then it will provide an interesting case study for AMD’s consumers. Between the two, AMD is the only firm that can design processors with both ARM and x86, providing it with a unique insight into chip design.
At the heart of the two firms’ plans is TSMC since it is the only firm in the world capable of delivering thousands of processors manufactured on the latest manufacturing technologies. TSMC’s 3-nanometer process is a ready to use off the shelf solution for customers, and the firm will continue to enjoy this advantage as long as Intel’s plans to manufacture chips for third parties based on contracts bear fruit.
Citi’s report also believes that the capacity utilization for 8 inch wafers, particularly the ones offered by UMC and ASE Group, will take longer to recover. The duo are key TSMC supply chain partners for packaging technologies essential for advanced AI chips, and the bank believes that 8 inch wafer utilization will not grow until H2 2024 due to low demand for microcontrollers and other products.