TSMC released its first quarter 2023 earnings report (as of March 2023) on the afternoon of April 20, 2023, Beijing time, as follows:
1. Income side: volume and price are falling, and it is difficult to escape the cycle circle. TSMC's revenue in the first quarter of 2023 was $16.72 billion, at the lower end of the performance guidance range ($16.7-$17.5 billion). Quarterly revenue declined sequentially, with the shipment dimension impacting -12.8% and the average shipment price dimension impacting -3.8%. The decline in prices was mainly affected by the decline in the industry cycle, while the decline in shipments was mainly caused by the adjustment of customer orders;
The decline in TSMC's revenue in this quarter mainly came from North America, because US customers made order adjustments under inventory pressure, which directly affected TSMC's current performance;
2. Gross profit and gross margin: high places are cold. TSMC's gross margin in the first quarter of 2023 was 56.3%, although it exceeded the upper limit of the guidance range (53.5-55.5%), but it declined by nearly 6pct sequentially. Previously, in the semiconductor boom cycle, TSMC's gross profit margin frequently rose and exceeded 60%, which was not sustainable. Under the influence of falling prices and higher costs, the company's gross margin also slipped from a high level.
3. High-performance computing (HPC) has become the first pillar, and 3nm is still difficult to produce. As smartphones continue to weaken, HPC's share reaches 44%, becoming the new core of the company's business. With the recovery of demand for graphics cards and data centers, the proportion of HPC's business is expected to continue to increase. On the process node, 3nm has not yet achieved mass production, which has suppressed the increase in the average price of the company's products to a certain extent.
4. TSMC performance guidance: expected revenue of US$15.2-16 billion (market expectation of US$16.1 billion) and gross margin of 52-54% (market expectation of 52.57%) in the second quarter of 2023. The revenue side was slightly lower than market expectations, continuing to decline by 4%-9% month-on-month, mainly because orders have not yet picked up, and prices are also under pressure. Although the gross margin side was in line with market expectations, it continued to decline from the quarter, mainly due to the decline in the average price of the company's products and the decrease in capacity utilization.
Dolphin Jun's overall view:
TSMC's earnings report this quarter is basically in line with market expectations. Combined with monthly data disclosed monthly, TSMC's month-on-month decline in revenue has been expected by the market. The main focus of the financial report falls on the company's gross margin and the progress of each business. Gross margin declined significantly under the influence of lower prices and higher costs, but overall it was better than market expectations.
Referring to TSMC's guidance for the next quarter: revenue of $15.2-16 billion in the second quarter (down 4%-9% sequentially) and gross margin of 52-54% (down 2.3-4.3pct qoq). From the perspective of revenue guidance, TSMC's volume price in the next quarter may still continue to decline. From the perspective of gross margin guidance, the company's customer orders did not show any signs of recovery in the next quarter. Therefore, Dolphin Jun believes that TSMC will still be difficult to get out of the trough of the industry in the next quarter.
Combined with this earnings report and next quarter's guidance, Dolphin Jun believes that TSMC's current situation is "not bad or bad" as expected by the market. Semiconductors are down, and TSMC is also unable to escape cycle ups and downs. The current decline in revenue and gross margin from its high point can only be said to be within the expectation of the downturn of the cycle.
In general, TSMC's performance did not see improvement in the first half of the year. It is necessary to wait until the second half of the year to observe the recovery of downstream demand, new machines for large customers and mass production of 3nm. The order adjustment of current downstream customers is not a bad thing, indicating that the pressure of the industrial chain has been clearly transmitted to TSMC. With the release of inventory pressure in the industrial chain, the entire semiconductor industry chain is expected to usher in an opportunity to reach the bottom in an all-round way.
The following is the specific analysis of TSMC by Longbridge Dolphin Jun:
First, the income side: Volume and price are falling, and it is difficult to escape the cycle circle
TSMC achieved revenue of US$16.72 billion in the first quarter of 2023, which is at the bottom of the performance guidance range (US$16.7-17.5 billion), and quarterly revenue continued to decline sequentially. Revenue for the quarter fell 16.1% sequentially, and the change in quarterly revenue was mainly due to the decline in semiconductor prosperity and the decline in the volume and price of the company's wafers.
TSMC's quarterly revenue, due to the announcement of monthly operating indicators, the market expectations have been sufficient. In this quarter, TSMC's revenue experienced a rare double-digit decline, how did it perform in price and shipments?
Dolphin Jun observed the main driving force of TSMC's revenue growth in the first quarter from the dimensions of volume and price:
1) Volume dimension: TSMC's wafer shipments in 2023Q1 were 3,227 thousand wafers, down 12.8% month-on-month. TSMC shipments declined sequentially in the quarter, mainly due to the impact of customer order adjustments due to some downstream downturns. Combined with capital expenditures, TSMC's capital expenditures for the quarter were $9.94 billion, down from the previous quarter. The company has previously maintained a relatively conservative capital spending plan for 2023 ($32-36 billion) and is still maintaining a pace of capital investment.
2) Price dimension: TSMC's wafer single-wafer revenue (equivalent 12-inch piece) in 2023Q1 was $5,181/piece, down 3.8% sequentially. TSMC's wafer shipment price ended a 7-quarter consecutive quarter of gains, and the decline in the quarter was mainly due to the company's impact on the industry's downturn. The downward cycle of semiconductors is transmitted to TSMC through the industrial chain, putting pressure on the company's product price increase.
Dolphin Jun mentioned in the last quarter's financial report review "TSMC's thunder, Buffett can not suppress the position" that "the downward cycle of semiconductors has been transmitted to TSMC". The decline in TSMC's revenue and gross margin in this quarter also confirms that the company cannot escape the current round of semiconductor downward cycle.
Combined with TSMC's guidance for the next quarter, revenue in 2023Q2 was $15.2-16 billion (down 4%-9% sequentially) and gross margin was 52-54% (down 2.3-4.3pct sequentially). The company's performance in the next quarter has not yet shown significant improvement, and prices and gross margins will continue to decline. TSMC's performance may have to wait until the second half of the year.
Second, gross profit and gross margin: the height is cold
TSMC achieved gross profit of $9.42 billion in the first quarter of 2023, down 24% sequentially. The decline in gross profit was greater than the decline in revenue, mainly because the gross margin also "collapsed".
TSMC's gross margin in 2023Q1 was 56.3%, down 5.9pct sequentially. Although the gross margin was better than the market expectation of 54.5%, it was significantly lower than the previous situation of more than 60%.
In 2023Q1, TSMC's gross profit decreased by 24% month-on-month, of which the impact of revenue was -16.1%, and the dimension of gross margin contributed -9.4%.
The two data that the market is most concerned about TSMC are revenue and gross margin. Due to the release of monthly operating data, quarterly revenue has basically been expected by the market. Gross profit margin is one of the focuses of market attention in this quarterly report. Longbridge Dolphin Jun will analyze the main drivers of gross margin improvement in the quarter:
"Gross profit = revenue per wafer - fixed costs - variable costs"
1) Single-wafer revenue (equivalent 12-inch): TSMC's single-wafer revenue in 2023Q1 was about $5,181/piece, down $202/piece month-on-month, mainly affected by the downturn in the semiconductor industry, and the company's product shipment prices fell;
2) Fixed cost (depreciation and amortization): TSMC's average fixed cost in 2023Q1 was about $1,124/piece, an increase of $198/piece month-on-month. This was due to a significant decline in shipments during the quarter, resulting in an increase in unit cost of depreciation amortized to monolithic wafers;
3) Variable cost (other manufacturing expenses): TSMC's average variable cost in 2023Q1 was about 1139 US dollars / piece, an increase of 31 US dollars / piece from the previous month. The increase in variable cost per chip was mainly due to the increase in manufacturing costs and the decline in overall shipments.
Based on the above split, TSMC's single-chip gross profit in 2023Q1 was $2,919 per piece, down $431 month-on-month. Gross profit per unit declined significantly, with the impact of lower unit prices at $202 and higher unit costs at $229.
TSMC's decline in revenue had been expected by the market, and gross margin was the main focus this time. The decline in prices and the decline in shipments affect the release of the company's gross margin on the price side and the cost side, respectively. And the specific degree of influence, Dolphin Jun believes that each accounts for about 50%. Combined with the company's guidance of 52-54% for the next quarter, TSMC will still be affected by the decline in prices and shipments in the next quarter, and it is difficult for gross profit margin to recover in the short term.
Third, the wafer structure end: HPC has become the new core of the business
3.1 Wafer revenue percentage by application type
Smartphones and HPC are TSMC's largest sources of revenue, accounting for 78% of the total, making them the company's largest downstream.
In terms of downstream segmented applications, the share of smartphone business has fallen to 34%, while the share of HPC and automobiles has shown an upward trend, mainly because the smartphone market has matured and now entered the industry downturn.
On the contrary, HPC and automobiles show more room for growth. HPC mainly includes the needs of graphics cards and data centers, while automobiles mainly include new needs such as intelligent driving. Dolphin Jun believes that in the medium and long term, the impact of the smartphone business on TSMC will still weaken, while the impact of HPC and automobiles will continue to increase.
3.2 Wafer revenue ratio by process node
5nm and 7nm still accounted for more than half of the revenue in the quarter, and TSMC's advanced process revenue remained the company's largest source of revenue. Specifically, the proportion of 5nm and 7nm revenue declined slightly in the quarter, mainly because downstream chip factories made order adjustments under inventory pressure. This financial report also shows that the inventory pressure of the semiconductor industry is transmitted to the company through the industrial chain.
For new process nodes, although the company has previously announced that 3nm can be mass-produced, it has not yet achieved mass production without the adoption of large customers.
Dolphin Jun believes that from the company's guidance for the next quarter, there is still no sign of 3nm mass production in 2023Q2. The mass production of 3nm may have to wait until the second half of the year. If 3nm achieves mass production, it is expected to support the average shipment price of the company's products.
3.3 Wafer revenue percentage by region
From the perspective of revenue by region, North America is still TSMC's largest source of revenue. This is due to the fact that there is $Apple in North America. US , $ Qualcomm. US , $ NVIDIA. US 、$AMD. US and other large customers, so that TSMC and the United States have a strong business binding relationship. However, from the financial report, the proportion of revenue in North America has declined significantly, mainly because some of the company's large customers in the United States adjusted orders in this quarter, which is also the main factor for the company's revenue decline.
Excluding North America, China and Asia Pacific were the remaining two revenue streams, accounting for 15% and 8%, respectively, in the quarter. The share of revenue in China changed significantly in the quarter, continuing to increase to 15% in the quarter from 12% in the previous quarter. The adjustment of orders from some customers in North America released a capacity gap, and Chinese customers made up for part of the gap.
Dolphin Jun believes that the decline in the proportion of customers in North America is only a short-term behavior. U.S. chip companies need TSMC's production capacity, and TSMC also needs orders from large U.S. customers. It can be seen from TSMC's construction of factories in the United States that the cooperation between the two will be deeper in the future. After passing the end of the semiconductor cycle and inventory digestion, the proportion of revenue in North America will still recover.