Taiwan Semiconductor Manufacturing Reports Strong Earnings, Boosting Chip Sector

Taiwan Semiconductor Manufacturing (TSM) delivered impressive earnings that have lifted the gloom surrounding the chip sector. As the world’s largest contract chip manufacturer, TSMC’s positive outlook for 2024 is likely to benefit industry leaders like Intel and other semiconductor makers.

Steady Demand for Latest Chip Technology Counters Semiconductor Glut

Despite a glut of semiconductors caused by declining consumer electronics demand, TSMC noted that the strong demand for its latest chip technology has helped mitigate the impact. While third-quarter revenue dipped by 11% compared to the same period last year, it marked a significant 14% increase from the previous quarter.

TSMC’s Dominance in the High-End Chip Market

TSMC holds a dominant position in the market for high-end chips. The company manufactures the main processors utilized in Apple iPhones, mobile chipsets developed by Qualcomm, and processors made by Advanced Micro Devices (AMD). This market leadership contributes to the positive outlook for TSMC and further solidifies its position as an industry powerhouse.

Exceeding Expectations: Strong Net Profit

TSMC achieved a third-quarter net profit of 211.0 New Taiwan dollars ($6.51 billion), surpassing the FactSet consensus estimate of 190.94 billion New Taiwan dollars. In terms of revenue in U.S. dollars, TSMC generated $17.3 billion during this period.

Promising Fourth Quarter Revenue Projections

Looking ahead, TSMC projects a rise in revenue for the fourth quarter, with estimates ranging from $18.8 billion to $19.6 billion.

TSMC Expects Strong Fourth Quarter, With Continued Investments in Arizona

TSMC, the leading semiconductor manufacturer, anticipates a robust performance in the fourth quarter of 2023. According to TSMC’s Chief Financial Officer Wendell Huang, this positive outlook is primarily driven by the continued strong ramp of their cutting-edge 3-nanometer technology. However, it is worth noting that customer inventory adjustment is expected to partially offset this growth.

Notably, TSMC reports that revenue from North American customers accounted for 69% of their total revenue, marking an increase from the previous quarter’s 66%. As part of their commitment to further enhance their presence in the region, TSMC has planned a substantial investment of $40 billion in manufacturing sites located in Arizona. These sites are projected to commence chip supply to Apple by 2025.

The optimistic forecast from TSMC aligns with the recent performance of their chip-manufacturing rival, Samsung Electronics (005930.Korea). Samsung’s results were better than expected, indicating a potential easing of the inventory glut caused by sluggish PC and smartphone sales.

Intel (INTC), a prominent U.S. peer in semiconductor manufacturing, is also anticipated to benefit from these positive indicators. Intel will release its own earnings report next Thursday after the close of markets. Presently, Intel shares experienced a slight decline of 0.2% in premarket trading, reflecting the overall subdued sentiment in broader technology indexes amidst elevated bond yields.

Overall, TSMC’s promising outlook in the fourth quarter and its significant investments in Arizona position the company favorably in the dynamic landscape of semiconductor manufacturing.