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February 26, 2024

TSMC Beats Q4 Expectations Despite Sluggish Demand

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Jan 18, 2024

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, reported fourth-quarter results that beat expectations despite slowing demand for electronics and ongoing economic challenges. The company projected a return to growth this year as the tech market recovers.

Q4 Performance Exceeds Forecasts

TSMC posted $19.93 billion in Q4 revenue and $6 billion in profit, representing a 4% drop in sales and a 19% decline in profit from a year earlier. However, these results surpassed analyst estimates of $19.56 billion in revenue and $5.72 billion in earnings.

The company attributed its performance to strong demand for its advanced chips used in high-performance computing applications, even as sales of smartphone processors declined. Revenue from TSMC’s advanced 5-nanometer and 7-nanometer chips grew over 25% and accounted for half of total sales in Q4.

“Robust demand for our industry-leading 5-nanometer technology drove our business in the fourth quarter, despite headwinds from global economic challenges,” said TSMC CEO C.C. Wei.

TSMC’s key financial metrics for Q4 2023 are summarized below:

Metric Q4 2023 Q4 2022 Year-Over-Year Change
Revenue $19.93 billion $20.79 billion -4%
Net Profit $6 billion $7.42 billion -19%
Gross Margin 51.7% 53.6% -1.9 pp
Advanced Tech Revenue 50% of total 40% of total +10 pp

pp: percentage points

Sluggish End-Market Demand Persists

Although TSMC topped expectations last quarter, its full-year 2023 performance reflectdd the ongoing sluggishness in end-market demand that has affected the entire semiconductor industry.

The chipmaker reported an 0.8% drop in annual revenue to $72.29 billion, marking its first ever year-over-year sales decline. Net profit for 2023 fell 16% to $26.26 billion, while gross margin narrowed to 52.7% from 53.1% a year earlier.

TSMC attributed the challenging business conditions to macroeconomic uncertainty, high inflation, geopolitical tensions, and significant inventory correction across multiple industries. These factors weakened demand for consumer electronics like smartphones and PCs.

However, the company expects conditions to improve in 2024. “We expect this inventory correction phase to substantially pass by end of 2023, with steady revenue growth in 2024 as end market demand recovers,” CEO Wei stated.

Outlook Calls for Solid Growth Recovery in 2024

Despite ongoing economic headwinds affecting technology spending, TSMC issued an upbeat outlook for 2024 and predicted a return to healthy growth.

The company forecasts revenue of $16.7 billion to $17.5 billion in Q1 2024, which would represent 10-15% annual growth. This outlook signals a reversal from the revenue declines seen over the past two quarters. For full-year 2024, TSMC projects revenue growth of 23-26% to reach $85-89 billion.

Analysts are optimistic on the growth prospects, attributing the improving demand outlook to stabilizing macro conditions, new product launches, and accelerating adoption of advanced high-performance computing technologies.

“We believe TSMC’s advanced technologies leadership…positions it well for the next leg of growth driven by HPC applications such as AI/ML, data center/networking, and autonomous driving,” said Credit Suisse analyst Randy Abrams.

TSMC also announced plans to ramp up capital expenditures substantially in 2024 to support the projected growth. The company plans to invest $32-36 billion this year to expand capacity – 65% more than it spent in 2023.

“We expect all our capacity to be fully utilized in 2024,” said CFO Wendell Huang, highlighting TSMC’s confidence in the demand recovery.

The chip giant’s optimistic 2024 outlook provides hope that the 2-year downturn in the semiconductor market may be nearing its end. As macro conditions stabilize and new technologies drive chip demand, TSMC seems poised to regain solid growth after a rare year of contraction.

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By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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