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TSMC delivers better-than-expected outlook as AI fuels demand

Bloomberg • 3 min read
TSMC delivers better-than-expected outlook as AI fuels demand
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Taiwan Semiconductor Manufacturing Co. delivered a better-than-projected revenue outlook and stuck with plans to spend as much as US$32 billion in 2024, shoring up expectations of sustained growth in AI demand. 

The forecast followed its first quarterly profit rise in a year, after strong AI demand revived growth at Asia’s biggest company. The main chipmaker to Nvidia Corp and Apple Inc expects revenue of US$19.6 billion to US$20.4 billion in the June quarter, beating estimates for about US$19.1 billion.

That outlook may help assuage some investors worried that AI demand won’t hold up, or that a smartphone recovery may be longer in coming. TSMC only last week disclosed its fastest sales growth since 2022, suggesting demand for the chips that accelerate artificial intelligence development is beginning to offset the fallout from a smartphone market slump. Apple, which accounted for about a quarter of TSMC’s revenue in 2023, started the year with a deep decline in iPhone sales.

However, TSMC Chief Executive Officer C. C. Wei said the company was revising downward its expectations for 2024 semiconductor market growth — excluding memory chips — to about 10%, from above that figure. He also trimmed his growth forecast for the foundry sector, which TSMC leads. But it clung to predictions for spending of between US$28 billion and US$32 billion on capacity expansion and upgrades this year.

“Looking at 2024 as a whole, macroeconomic and geopolitical uncertainty persists, potentially weighing on consumer sentiment and end-market demand,” Wei told analysts on a conference call.

TSMC continues to expect revenue to grow by at least 20% this year as the broader semiconductor market recovers, though uncertainty persists given global macroeconomic volatility. Key supplier ASML Holding NV — the sole provider of the world’s most advanced chipmaking machines — reported a 22% miss on first-quarter bookings Wednesday.

See also: US extends investigation into chip-gear maker Applied Materials

The Taiwanese chipmaker said it will begin mass production of next-generation 2nm chips in the last quarter of 2025, executives said, narrowing its timeframe from next year in general. And Wei added that TSMC’s automotive business will fall this year, versus previous projections for a rise, without elaborating.

TSMC has gained about US$340 billion of market value since an October 2022 trough, riding bets it will become one of the clearest winners of a global boom in AI development. On Thursday, it recorded a better-than-projected 9% rise in net income to NTUS$225.5 billion (US$7 billion) for the March quarter.

Executives said the earthquake that rocked Taiwan this month damaged some wafers used in its chip production, depressing gross margins by about 50 basis points or 0.5 percentage point in the June quarter.

See also: Nvidia stock surges as sales forecast delivers on AI hopes

Longer term, investors expect AI-focused chips to gradually take up a larger proportion of revenue. TSMC’s AI revenue is growing at a rate of 50% annually, the company said in January. 

Still, some investors have warned that the current level of AI chip demand is unsustainable over the long run. Others remain wary given the uncertainty hanging over the Taiwan Strait — the narrow body of water between China and an island it views as part of its territory.

“The demand is very high, extremely high, and we’ll do our best to increase our capacity to alleviate the shortage,” Wei said of AI demand. “Probably not enough this year, but for next year we’ll try very hard.”

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