TSMC bullish on AI as Q1 revenues rise

The AI market bears appear to be everywhere these days, but semiconductor companies continue to testify that the bulls are charging. TSMC, the world’s largest semiconductor manufacturer, said in its first quarter 2024 earnings statement that it had a year-over-year double-digit increase in net revenue, and forecasted another revenue increase for the second quarter.

Despite the generally good report, TSMC’s stock price was down about 4.7% to $132.50 at mid-day Thursday, several hours after the report was released. The reason why has less to do with AI demand and more to do with how softer activity in smartphones and other areas may affect the full-year 2024 overall demand for chips, according to published reports.

The AI chip market does not appear to be hounded by the same concerns. TSMC CEO C.C. Wei described AI-related demand as “insatiable,” and spoke at length during the company’s earnings call about where the market is headed:

“The continued surge in AI-related demand supports our already strong conviction that structural demand for energy-efficient computing is accelerating in an intelligent and connected world… AI technology is evolving to use ever increasingly complex AI models, which needs to be supported by more powerful semiconductor hardware. No matter which approach is taken, it requires use of the most advanced semiconductor process technologies. Thus, the value of our technology position is increasing as customers rely on TSMC to provide the most advanced process and packaging technology at scale with a dependable and predictable cadence of technology offering… Almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing power. We forecast the revenue contribution from several AI processors to more than double this year and account for low-teens percent of our total revenue in 2024. For the next five years, we forecast it to grow at 50% CAGR and increase to higher than 20% of our revenue by 2028.”

In the first quarter of this year, that strong market demand helped TSMC to consolidated revenue of NT$592.64 billion (US$18.87 billion). Year-over-year, first quarter revenue increased 16.5%, though compared to the fourth quarter of 2023, it declined by about 5.3%. (In US dollars, the first quarter year-over-year increase was 12.9%, while the sequential decrease was 3.8%.) 

In the first quarter, shipments of 3-nanometer accounted for 9% of total wafer revenue; 5-nanometer accounted for 37%; 7-nanometer accounted for 19%; and advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 65% of total wafer revenue. 

“Our business in the first quarter was impacted by smartphone seasonality, partially offset by continued HPC-related demand,” said Wendell Huang, Senior VP and Chief Financial Officer of TSMC. “Moving into second quarter 2024, we expect our business to be supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continued smartphone seasonality.” 

TSMC’s second quarter guidance is for revenue to land between US$19.6 billion and US$20.4 billion (based on the exchange rate assumption of 1 US dollar to 32.3 NT dollars).

Also, it does not appear that this month’s 7.2-magnitude earthquake off the coast of Taiwan will slow the company’s manufacturing activities. Huang stated on the call, “Based on TSMC's deep experience and capabilities in earthquake response and damage prevention as well as regular disaster drills, the overall tool recovery in our fabs reached more than 70% within the first 10 hours and were fully recovered by the end of the third day.

There were no power shortages, no structure damage to our fabs and there is no damage to our critical tools, including all of our EUV lithography tools. That being said, a certain number of wafers in process were impacted and had to be scrapped, but we expect most of the lost production to be recovered in the second quarter and, thus, minimal impact to our second-quarter revenue.”