January 13, 2022 is the day when TSMC holds an investor briefing meeting according to its usual practice, and all semiconductor customers, suppliers, and investors around the world are waiting for TSMC to "draw the lottery".
The so-called "lottery" refers to TSMC's prediction of the entire industry situation this year, including the growth rate of itself and the entire semiconductor industry, the outlook of the wafer foundry industry, the supply chain inventory situation, the growth or recession of various application products, and the first investor meeting of the year is the most important.
After a meeting, investors, suppliers, and customers can have the "core economy" of walking the chip industry and the code of conduct this year.
The global chip shortage has entered the third year, which is unusual in terms of the law of industrial circulation. Therefore, both industry insiders and investors have begun to disagree on this wave of chip shortages.
Previously, a large foreign-funded institution issued a report pointing out that TSMC is unlikely to be completely unaffected by the mobile phone inventory correction in these quarters, and it is expected that Logic Semiconductor will enter a state of oversupply in 2022, and the huge capital expenditure may not necessarily be recovered, and it is presumed that TSMC's stock price is no longer charming.
Earlier, some investors even said that money in TSMC is equivalent to dead money, and the boom cycle has reached the top!
However, at the investor meeting today, TSMC came up with actual figures and views on the outlook for the industry, overturning this cycle peak theory. Due to the huge amount of information, after disassembling the information in "Question Core Voice", it sorted out nine major points:
First, 2022 will still be a year of strong growth. TSMC estimates that the global foundry industry can grow by another 20%, which is the second year after 2021 that the global foundry industry will grow by 20%.
Furthermore, the global semiconductor market (excluding storage) is expected to grow by about 9% annually. TSMC itself will grow more than the industry as a whole (20%), with growth between 25 and 29% (mid-to-high twenties).
TSMC's statement is also equivalent to giving a shot in the arm for second-line wafer foundries.
In the past, the market will think that this wave of chip production capacity from tight to no longer lack, second-tier factories will usually be the first to be cut orders, TSMC will be affected by the back, usually cut to the end will cut TSMC's list.
Therefore, the industry is worried that after the chip shortage enters the third year, TSMC's operation is no problem, but the operation of the second-tier factory may not be so optimistic. Now TSMC estimates that the global wafer foundry growth rate will be 20% this year, and it is estimated that other industries will not be too bad.
Second, TSMC's capital expenditure in 2022 is estimated to reach $40 billion to $44 billion.
TSMC's capital expenditure in the past three years has increased from $14.9 billion in 2019 to $30 billion in 2021, and it is expected that capital expenditure will be raised to $40 billion to $44 billion in 2022.
Of the $40 billion to $44 billion in capital expenditure in 2022, about 70% to 80% will be spent on high-end processes including 2nm, 3nm, 5nm and 7nm; About 10% is used in high-end packaging and photomask manufacturing; In addition, about 10% to 20% will be used in special process processes.
Third, some investors have questioned whether the huge $40 billion investment implies risk and can it ultimately be reflected in revenue and earnings.
TSMC believes that in the past three years, the company's capital expenditure has increased from $14.9 billion in 2019 to $30 billion in 2021, compared with TSMC's revenue (in US dollar terms), from $34.6 billion in 2019 to $56.8 billion in 2021, an increase of 1.6 times, and earnings per share by 1.7 times.
It is enough to prove that the high annual capital expenditure can not only bring long-term profit growth to shareholders, but also support customers to continue to grow.
TSMC also pointed out that driven by the four growth platforms of smartphones, high-performance computing HPC, Internet of Things, and automotive electronics, it is expected that the compound annual growth rate (in US dollars) in the next few years will be 15% to 20%.
Fourth, the four major platforms: high-performance computing HPC, mobile phones, Internet of Things, automotive, who is the biggest driver of operational growth in 2022?
TSMC pointed out that HPC and automotive growth will be the strongest in 2022, followed by the Internet of Things, and finally mobile phones.
In the fourth quarter of 2021, smartphones accounted for 44% of overall revenue, HPC accounted for 37%, IoT accounted for 9%, and automobiles accounted for 4%. In 2021, smartphones and HPC will also account for 44% and 37% of revenue, respectively.
With the increase in demand for computing power, HPC will become the strongest driver of TSMC's long-term growth, while also bringing the greatest revenue growth. Among them, CPU, GPU, and AI accelerators are the main growth momentum on the HPC platform.
TSMC stressed that regardless of whether the short-term imbalance continues, the trend of structural transformation of long-term demand for semiconductors will remain unchanged, and the proportion of future demand from 5G and HPC-related applications will increase without looking back.
The industry speculates that the structural transformation has been developing, and it is estimated that hpc revenue will soon surpass smartphones and become the largest source of revenue contribution for TSMC.
Another phenomenon is that the semiconductor content of many end products has increased, including automotive electronics, personal computers, servers, networking and smartphones. Therefore, TSMC believes that it will maintain a tight production capacity in 2022.
In the 5G era, the demand for high-performance computing and low power consumption in a smarter and more connected world will increase significantly, so the demand for semiconductor high-end process technology has also been increasing.
The general trend from 5G and HPC-related applications in the next few years will not only increase the number of unit products, but more importantly, it will stimulate the semiconductor content in HPC, smartphones, automotive electronics, and IoT-related applications.
In order to face the structural growth of long-term market demand, TSMC is working closely with customers to plan production capacity, and investing in high-end and specialty processes to support customer needs.
Fifth, how long will the high inventory situation of the semiconductor industry chain be maintained?
TSMC believes that the high inventory situation in the semiconductor supply chain will remain for a long time because of the need to ensure safety stocks.
Entering 2022, in order to continue to ensure stable supply, the supply chain will maintain a high inventory level compared to historical seasonal inventory levels.
Sixth, what is the meaning behind TSMC's increase in the low standard of long-term achievable gross profit margin from 50% to 53%?
Many investment institutions have questioned TSMC's three-year investment of $100 billion, and its global expansion into factories around the world, these huge investments may not necessarily be recovered in the future, may affect profits.
Instead, TSMC believes that in the long run, the company's average gross profit margin of more than 53% is achievable, and it can get continuous and appropriate compensation, with an ROE of more than 25%.
TSMC's gross profit margin outlook for the first quarter of 2022 is 53 to 55%.
In fact, TSMC's strategy has changed! The previous gross margin strategy was to maintain 50%, now it is necessary to maintain 53% gross margin. This means that in the future, the 53% gross margin will be used as a benchmark to consider the price of the order and whether the price will continue to increase in the future.
The gross profit margin to be maintained before was 50%, which is considered that there may be competitors who cut prices and grab orders, and to prevent the loss of market share, so it is not necessary to earn more, the biggest purpose is to keep the market share. But these two years down, basically now TSMC's industry leader status is difficult to shake, even the price increase of 20% is still a bunch of people queuing at the door, now naturally to set the standard of gross profit margin a little higher.
Seventh, the latest progress on 5nm, 4nm, 3nm process technology.
5nm Process (N5): Entering its third year of mass production, demand continues to be strong, driven by smartphones and high-performance computing HPCs.
N4P and N4X Processes: To improve the performance, power consumption, and density of the next wave of 5nm process products, TSMC introduced N4P and N4X process technologies.
Compared with N5, N4P has 11% more performance, 22% lower power consumption, and 6% more density. The design of the N4P can be easily upgraded from the N5, and the first product design finalization is expected to be in the second half of 2022.
At the same time, TSMC will also introduce N4X process technology specifically for optimizing HPC product workloads. The N4X will offer better performance than the N5 and is expected to enter trial production in the first half of 2023.
In the fourth quarter of 2021, TSMC's 5nm process shipments accounted for 23% of revenue; 7nm processes account for 27%. Overall, Advanced Manufacturing (including 7nm and more advanced processes) revenue reached 50% of overall revenue.
3nm Process (N3): FinFET transistor architecture will be used to provide customers with the most proven technology, best performance and cost, and the strongest PPA (performance, power consumption, and area).
TSMC said that the N3 is developed as planned and has developed a complete platform to support HPC and smartphone applications. The N3 is expected to be in mass production in the second half of 2022.
At the same time, TSMC also observed that the N3 has many customer engagements, and it is expected that there will be more new product tape-outs in the first year than the N5.
In addition, N3E is an extension of TSMC's 3nm family, with better performance, power consumption and yield, there are currently many customers involved, and the N3E mass production time is expected to be planned to take place one year after the N3 mass production.
Special process: Strategically work closely with customers. Megatrends in the coming years from 5G and HPC-related applications, as well as increased semiconductor content in many end applications, will drive the increasing demand for certain featured process technologies in mature processes.
Eighth, a view of the 28nm outlook.
Since 28nm once faced overcapacity in 2018 and 2019, but now benefits from the explosion of demand such as CMOS sensors, the future demand continues to be strong. In particular, 28nm will be a sweet spot for embedded memory applications, and the long-term structural demand for 28nm processes will come from a variety of featured process technologies.
TSMC's global 28nm production base will expand its 28nm production line in Nanjing, Japan, and Taiwan.
Ninth, will the EUV lithography opportunity become a bottleneck for active production expansion in the future?
TSMC pointed out that the EUV lithography machine will not become a bottleneck for capacity expansion in 2022. In view of the 2023 plan, we are actively communicating with suppliers.
TSMC pointed out that it is currently entering a period of higher structural growth, as technology becomes more common and indispensable in people's lives, and the digital transformation accelerates, the value of the semiconductor industry continues to increase in the supply chain.
Looking forward to 2022, wafer foundry capacity continues to be tight, operations will continue to grow, the growth rate of the entire wafer foundry industry is still moving towards 20%, and hpC and automotive electronics will be the main axis driving the continued growth of the semiconductor industry in the future.