TSMC’s Third-Quarter Earnings Show Reversal in Chip Sector Slowdown
TSMC (Taiwan Semiconductor Manufacturing Company) has reported its earnings for the third quarter of 2023, revealing that the firm has benefited from increased demand for smartphones. This demand has managed to offset some of the negative effects of a slowdown in the chip sector that has been experienced for the majority of this year. While there has been a drop in revenue compared to the previous year, there has been a small sequential growth, indicating that the chip sector is starting to recover.
The results highlight that the chip sector has contracted since 2023, as orders for foundries have decreased. However, TSMC’s earnings call for the third quarter was more positive compared to the second quarter, signaling that inventory replenishment in the chip sector has started to pick up. This is a promising development for the industry.
HPC (High-Performance Computing) remains the largest revenue driver for TSMC, and it is predicted that this will continue to be the case in the future. Citigroup, a financial firm, believes that the growth of TSMC’s revenue can be driven by HPC and AI (Artificial Intelligence) chips built with advanced manufacturing processes like the 3-nanometer technology. They predict a compounded annual growth rate of 20% for TSMC.
Citigroup also maintains a positive outlook for mature nodes, raising the share price target of United Microelectronics Corporation (UMC) to NT$61 from NT$56. UMC is a key supplier for older chip technologies used in general-purpose tasks. This increase in target price indicates the optimism surrounding UMC.
Looking ahead, there may be more orders for personal computing products in the future, as AMD and NVIDIA plan to launch their PC chips designed with Arm’s microarchitecture to compete with Apple. This news has had a positive impact on the share prices of NVIDIA and ARM, with NVIDIA’s shares closing higher by 3.84% and ARM’s shares increasing by 4.89%. It is speculated that these new products will be ready by 2025, providing an interesting opportunity for AMD and its consumers.
TSMC plays a crucial role in the plans of AMD and NVIDIA, as it is the only company capable of delivering thousands of processors manufactured using the latest technologies. TSMC’s 3-nanometer process is readily available for customers, ensuring that the company remains at an advantage as long as Intel’s plans to manufacture chips for third parties continue.
Citigroup’s report also suggests that the recovery of capacity utilization for 8-inch wafers, particularly those offered by UMC and ASE Group, will take longer. These wafers are essential for packaging technologies used in advanced AI chips. The bank predicts that the demand for microcontrollers and other products will not increase until the second half of 2024, causing a delay in the growth of 8-inch wafer utilization.
In conclusion, TSMC’s third-quarter earnings demonstrate a reversal in the chip sector slowdown, thanks to increased smartphone demand. While there has been an overall decrease in revenue compared to the previous year, the sequential growth indicates a positive trend in the industry. The potential launch of PC chips using Arm’s microarchitecture by AMD and NVIDIA presents an exciting opportunity for both companies. TSMC’s role as a leading chip manufacturer further strengthens its position in the market, ensuring continued growth in the future.
