TSMC Law Meeting: This year's revenue may increase by two percent, and a record high is just around the corner?

TSMC today announced its fourth quarter 2023 financial results and held a legal conference. Specifically, TSMC's revenue in the fourth quarter of last year was 19.624 billion US dollars, a slight decrease of 1.5% year-on-year, exceeding the 18.8-19.6 billion revenue guidance given by the management, and an increase of 13.6% from the third quarter of last year:

By advanced process, TSMC's 7nm and below process contributed 67% of revenue, a record high:

In terms of platforms, high-performance computing (HPC) contributed 43% of revenue in the fourth quarter, an increase of 17% from the third quarter of last year, including PC, data center and AI GPU, and smartphones contributed 43% of revenue, an increase of 27% from the third quarter. It is worth noting that the automotive chip business contributed 5% of the revenue in the fourth quarter, an increase of 13% from the third quarter, mainly driven by the development of new energy vehicles:

Obviously, the locomotive of TSMC's future performance growth is AI chips, mobile phone and computer replenishment and automotive chips, and IOT and other business revenues account for a relatively small proportion of growth, and there is not much room for growth, which will not be TSMC's main source of income.

Although TSMC's revenue declined slightly in the fourth quarter, due to the impact of reduced capacity utilization and 3nm process ramp-up, TSMC's gross profit margin in the fourth quarter was 53%, a significant decrease of 9.2 percentage points from the same period in 2022, and the net profit margin also decreased from 47.3% to 38.1%.

The decline in profitability was expected, with gross margins falling above the guidance center and operating margins exceeding the upper end of guidance in the fourth quarter compared to management's previous guidance.

Overall, TSMC's quarterly report exceeded expectations.

Looking forward to the first quarter of 2024, TSMC's revenue guidance is between $18 billion and $18.8 billion, and the median value will show a year-on-year increase of 10% in revenue, which will reverse TSMC's previous four consecutive quarters of revenue decline.

In terms of gross margin, guidance of 52%-54% is slightly higher sequentially.

The company expects full-year revenue growth of 20%-25% year-on-year in 2024, and a compound growth rate of 15%-20% in the next few years.

Management said at the performance conference that there is currently a long-term strong demand for the 3nm process from customers, and it is expected that the revenue of 3nm will increase by 2 times this year. CoWoS, which was previously in the limelight in the AI wave, is a 2.5D package, while TSMC's SoIC is the industry's first high-density 3D chiplet stacking technology. This technology is a next-generation packaging technology developed by TSMC based on CoWoS and multi-wafer stacking (WoW). The technology offers an innovative front-end 3D chip stacking technology for the reintegration of chiplets partitioned from a system-on-chip (SoC). Compared with the 2.5D package solution, the SoIC bump density is higher, the transmission speed is faster, and the power consumption is lower.

Following NVIDIA's decision to expand orders in October 2023, heavyweight customers such as Apple, AMD, Broadcom, and Mywell have also recently added CoWoS orders to TSMC. In order to meet the needs of the above five major customers, TSMC will accelerate the pace of CoWoS advanced packaging capacity expansion, and the monthly production capacity in 2024 will increase by about 20% from the original doubling target to 35,000 pieces - in other words, TSMC's monthly CoWoS production capacity in 2024 will increase by 120% year-on-year.

At the same time, TSMC has also further placed additional orders for equipment manufacturers, and a number of advanced packaging equipment factories have received notices from TSMC that they must fully support them to expand their advanced packaging production capacity. The industry expects that TSMC's additional orders for CoWoS-related equipment manufacturers will be installed and put into trial production in the first half of this year, and production capacity will begin in the second half of this year.

The entire industry is waiting for AI chip production capacity to be opened, and AI chip manufacturers are "looking forward" to TSMC's CoWoS production capacity. It has been reported that because the delivery time of CoWoS equipment is still as long as 8 months, TSMC has begun to modify the equipment in November and start the integrated fan-out package (InFO) modification. At that time, it was reported that this move would increase the monthly production capacity of CoWoS to 15,000 pieces, which was better than the market consensus of 12,000 pieces.

At present, NVIDIA is a major customer of TSMC's CoWoS advanced packaging, accounting for almost 60% of TSMC's production capacity, mainly used in its H100, A100 and other AI chips.

At the same time, TSMC predicts that capacity utilization will increase in 2024, industry inventories will return to healthy levels, and capital expenditure is expected to reach $28 billion to $32 billion in 2024, higher than the market expectation of $28.86 billion. It is worth noting that the semiconductor industry is obviously cyclical, and the capital expenditure changes greatly, such as in October last year, the company had predicted that the capital expenditure for the whole year of 2023 would be 32 billion US dollars, but in fact it was only 30.45 billion.

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