TSMC profits rise on AI boom, but company lowers industry sales outlook

By Louis Goss

Taiwan Semiconductor Manufacturing Company on Thursday posted an increase in its profits for the first time in three quarters, as it gave a more cautious outlook for the broader industry.

TSMC (TSM), which supplies microchips to tech giants Apple (AAPL) and Nvidia (NVDA), last week reported a 16.5% increase in its first quarter sales, to NT$592.64 billion ($18.9 billion), as its revenue was driven up by surging demand for cutting edge 3nm chips from high performance computing customers.

The Hsicnchu headquartered company said on Thursday that its profit rose 9% to NT$225 billion, or NT$8.70 per share ($1.38 per ADR), in what marked a return to growth following three consecutive quarters of decline caused by 2023's worldwide chip market slump. Analysts polled by FactSet expected earnings of NT8.31 a share.

In a presentation, TSMC said it now expects to generate revenue worth $19.6 billion to $20.4 billion in the second quarter of 2024, in what would mark an 3.7-7.9% increase in sales, compared to the first quarter, and a double-digit increase on the second quarter of 2023.

It did note there would be a 50 basis point hit to its margins due to the earthquake that hit Taiwan and damaged factories.

On a conference call, the company said it cut its industry sales outlook for the year, now expecting 10% growth outside memory, down from "more than 10%."

CEO CC Wei said while AI demand was strong, the traditional server demand is "lukewarm," internet of things and consumer remain sluggish and auto inventory continues to correct.

Taiwan Semi shares fell 3% in premarket trade.

Smartphone-related sales slip

The chip maker's sales were bolstered by a 3% increase in demand from its high-performance computing customers -- which includes companies working with big data and supercomputers -- that accounted for 46% of TSMC's overall first quarter revenue.

This increase from high tech companies working in fields including AI offset a 16% slump in revenue from smartphone makers, who in accounting for 38% of TSMC's revenue in the first quarter, count as the company's second largest source of revenue.

Analysts at JPMorgan, led by Gokul Hariharan, said the slump in sales to smartphone makers and automotive companies was slowing down TSMC's recovery, but said the company's sales could be boosted by its shift towards the AI server market.

The Taiwanese company's sales were also driven up by new demand for its most advanced 3 nanometer chips, which TSMC first started manufacturing at scale in December 2022, before starting to sell them in the third quarter of the following year.

Now, following high demand from customers including Apple, sales of the high-tech chips account for 9% of TSMC's revenues. The Taiwanese company is currently planning to launch its next generation 2 nanometer chip in 2025.

JPMorgan's analysts said TSMC's sales of its soon-to-be-launched 2 nanometer chip could likely surpass those of its 3 nanometer chip, as they said inflation-linked price increases could see it achieve margins at rates of 53%.

This would see TSMC meet the upper end of its guidance for the second quarter, through which it is aiming to achieve margins of 51%-53%.

TSMC is currently by far the biggest chipmaker in the world, having taken a 61% share of the global semiconductor market in the fourth quarter of 2023, putting in well ahead of its closest rival Samsung (KR:005930), which held just a 14% share, according to data from Counterpoint Research.

In the first quarter of 2024, TSMC generated 69% of its revenue from main market North America, versus 9% from China, 12% from the Asia-Pacific, 6% from Japan, and 4% from Europe, the Middle East, and Africa.

-Louis Goss

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04-18-24 0913ET

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