TSMC Hints At Exit From Industry Downturn In Q4 Via Revenue Guidance

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The Taiwan Semiconductor Manufacturing Company (TSMC) reported $17.28 billion in revenue for the third quarter of 2023 earlier today to mark for 10.2% sequential growth and a 14.6% annual drop. TSMC’s latest earnings report comes as the semiconductor sector remains tight and firms struggle to reach capacity level of 2022 in the midst of a historic slowdown that has seen companies on the consumer side of the market struggle to make shipments. Fluctuations in the Taiwanese dollar and a stronger U.S. dollar have also affected TSMC’s revenue growth, as its revenue marked a higher 13.7% sequential growth in NT$ terms, with the annual drop also paring to 10.8%.

TSMC Ascribes Quarterly Revenue Growth To 3nm Ramp Up & Higher Demand For 5nm Products

The third quarter was the first time when TSMC recorded its revenue from the leading edge 3-nanometer semiconductor process technology. 3-nanometer entered mass production earlier, and the first set of products is believed to be headed Apple’s way for the firm’s latest iPhone lineup. According to TSMC, 3-nanometer accounted for 6% of its revenue during Q3 2023,  with the contribution coming at a time when several other products saw their share of the revenue pie drop.

6% of the total revenue implies that the firm earned $1 billion from the advanced products, but the lion’s share of revenue went to the older 5-nanometer process technology family.  5-nanometer accounted for 37% of TSMC’s revenue, higher than its contribution during the second quarter and during the third quarter of 2022.

In terms of products, high performance computing (HPC) accounted for the largest share of TSMC’s sales, in a changing trend from Q3 2022 when smartphones were the leading users of the firm’s products. However, smartphones accounted for 39% of TSMC’s Q3 2023 revenue, ticking upwards from the second quarter’s 33%, while HPC trended lower at 42% from an earlier 44%.

TSMC’s revenue breakdown by platform for the third quarter of 2023. Image: TSMC

Looking at revenue growth, the seasonal smartphone sales ended up increasing smartphone revenue by 33% over the prior quarter, with TSMC’s biggest earner, HPC, showing a more modest 6% growth. Apart from these two, the rollout of 5G and the broader industrial shift towards the Internet of Things (IoT) gadgets also led to IoT, marking the second highest platform growth during the third quarter, which stood at 24%.

As part of its prepared remarks, TSMC’s management shared that the 3-nanometer ramp up helped with the revenue growth during Q3. However, its growth, coupled with the stronger demand for 5-nanometer products, was offset by continuing inventory adjustments in the personal computing space.

During the earnings call, TSMC’s management remained optimistic about the demand for artificial intelligence (AI) products. The firm’s chief executive officer Dr. C.C. Wei, shared that AI demand could persist through 2024 and that the demand for 3-nanometer products was higher right now than before. However, he cautioned that it was insufficient to make up for the demanded drop due to inventory correction, which is continuing as of October 2023.

As for the demand for 5-nanometer products, which proved to be vital to TSMC at a time when the broader market is slowing down, management stated that smartphones and HPC, which include AI, were the primary drivers.

For the current quarter, TSMC expects to bring in revenue ranging between $18.8 billion and $19.8 billion. Interestingly, the upper end of this guidance, i.e., $19.8 billion, will mark a mere $100 million annual revenue drop over Q4 2022 revenues, and should TSMC succeed in meeting the upper end of its revenue guidance, then it will have exited 2023 on an upward trend marking its exit from the chip industry downturn.

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