Key Takeaways
- TSMC’s Q4 profit fell 19% due to sluggish smartphone demand and softening global economy
- But revenue was flat and beat market expectations as TSMC maintained market leadership
- Forecasts return to strong growth in 2024, predicting up to 26% revenue increase
- Growth outlook based on expectations of rising demand for AI and high-performance computing chips
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, reported a 19% drop in fourth quarter profit amid a sluggish smartphone market and economic headwinds. However, the company still managed to exceed market expectations with flat revenue growth in Q4.
More importantly, TSMC issued an optimistic forecast for 2024, predicting up to 26% revenue growth on expectations of rising demand for advanced chips powering artificial intelligence (AI) and high-performance computing applications. The positive outlook boosted TSMC’s shares and pointed to a recovery in the global semiconductor market this year.
Q4 Performance Details
TSMC reported net profit of NT$166.2 billion ($5.4 billion) for Q4 2022, a 19% decrease compared to the same quarter last year but topping market estimates of NT$161 billion.
The company’s revenue in Q4 came in at $19.93 billion, a rare year-over-year decline but still beating expectations. Operating margin also fell to 50.7% from 52.7% a year earlier.
| Key Figures | Q4 2022 | Q4 2021 | Year-over-Year Change |
|---|---|---|---|
| Revenue (NT$ Billion) | 620.8 | 625.5 | -0.8% |
| Net Profit (NT$ Billion) | 166.2 | 205.1 | -19% |
| EPS (NT$) | 6.43 | 7.73 | -16.8% |
Table summarizing TSMC’s key Q4 financial figures compared to the previous year.
Sluggish End-Market Demand
The decline in TSMC’s Q4 profits reflected sluggish demand from smartphone manufacturers and other major clients amid the weakening economy.
The semiconductor industry experienced weak demand and chip oversupply issues throughout most of 2022, especially impacting smartphone chips and those used for PCs, gaming devices and other electronics. This led to reduced orders for chip manufacturing from companies like Apple – TSMC’s largest client at over 25% of sales.
However, TSMC still maintained a highly resilient performance relative to the overall market slowdown. It likely solidified its market leadership standing, helping it remain on track to reach around 60% global market share in wafer foundry.
Optimistic 2024 Outlook Driven by AI
Despite the headwinds in Q4, TSMC provided an upbeat sales outlook for 1Q 2023 and full-year 2024.
The chip giant expects revenue to climb to between $16.7 billion to $17.5 billion in Q1 2023, reflecting a much improved 26% jump from a year earlier at the midpoint.
More significantly, TSMC predicts 2024 revenue growth of 15-20% to reach around $90-93 billion. That would represent TSMC’s strongest growth in four years. The optimistic outlook is based on rising demand for advanced 5nm and 3nm chipmaking capacity to power AI algorithms and high-performance computing used in data centers, autonomous vehicles, and other future technologies.
In fact, TSMC already sees AI driving the majority of its business expansion in the years ahead. The company estimates demand for AI-focused chips to fuel as much as 26% revenue growth in 2024 as enterprises and developers adopt AI solutions at scale. TSMC’s most cutting-edge 3nm manufacturing technology in particular is expected to drive the bulk of its revenue and margin growth based primarily on AI chip demand.
TSMC will also continue prioritizing capacity expansion efforts this year, expecting around $32-36 billion in capital spending – similar to the record high levels of investment in 2022. The majority of that budget will go towards advancing next-generation nodes below 5nm, notably 3nm and 2nm processes. TSMC is racing ahead of rivals like Samsung and Intel to be first to market with 3nm and 2nm production.
Key Impacts and Outlook
The positive guidance from TSMC points to a recovery in the global semiconductor market occurring in 2024 after a downturn last year. Improving supply-demand dynamics and the rollout of new smartphone models incorporating higher value chip content later this year should also revive broader mobile chip demand.
Meanwhile, the booming AI sector promises to be a much needed catalyst driving growth for TSMC and the overall industry. According to TSMC, AI adoption is still only around 5-10% penetrated in the addressable market of enterprises and developers. That leaves a vast runway for AI computing power demand that will necessitate constant advancement of chip manufacturing capabilities.
If TSMC hits its growth targets in 2024 as predicted, it would mark an impressive rebound demonstrating resilience amid the challenging economic environment. It may also compel other leading chip developers like Nvidia, Qualcomm and Apple to issue similarly optimistic forecasts for 2024 and provide positive outlooks for the tech sector overall.
In any case, TSMC looks well positioned to expand its first-mover advantages in advanced process technologies. By leading in 3nm and 2nm production, it can better capitalize on rising demand from cutting edge AI, machine learning, high performance computing and other applications – making TSMC’s future increasingly synonymous with enabling 21st century technologies.
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