TSMC Q3 Report: Revenue, Capital Spending, and Future Plans
On October 19, 2023, TSMC held its quarterly briefing, where the CEO, Wei Cheng, and CFO, Renzhao Huang, shared key insights into the company's Q3 performance and outlook for Q4. They also addressed various aspects, including changes in capital expenditures, advanced semiconductor processes, international expansion, the semiconductor market's stability, and the impact of recent U.S. export restrictions on China.
1. Latest Financial Report
In Q3 2023, TSMC reported consolidated revenue of 546.73 billion New Taiwan Dollars (NTD). After-tax net income was approximately 211 billion NTD, translating to an earnings per share of 8.14 NTD. Year-over-year, revenue dipped by 10.8%, but it rose by 13.7% compared to the previous quarter. In U.S. dollars, the Q3 revenue was $17.28 billion, showing a 14.6% decline YoY but a 10.2% increase from the preceding quarter.
In terms of business segments, smartphone revenue surged by 33% QoQ, while high-performance computing revenue increased by 6%. Automotive business revenue, however, saw a 24% decrease. Geographically, 69% of revenue originated from North American clients, up from 66% in the previous quarter, and 12% came from mainland China, remaining stable.
Looking ahead to Q4, TSMC's CFO, Renzhao Huang, forecasted revenue between $18.8 billion and $19.6 billion, reflecting a sequential growth rate exceeding 11%. Nevertheless, he anticipates a slight decrease in both gross margin and operating margin compared to Q3.
Huang addressed recent rumors about reduced capital expenditures, confirming that the company's full-year capital expenditure target remains at $32 billion. This figure aligns with the expectations set during the July earnings call. Huang emphasized that capital expenditure planning at TSMC revolves around future customer demands and growth, with approximately 70% allocated to advanced process technology, 20% to mature and specialty process technologies, and 10% to advanced packaging, testing, and mask production.
2. Advanced Semiconductor Processes
In Q3, TSMC's 3nm process contributed 6% to the overall wafer sales, while the 5nm process accounted for 37%, and the 7nm process represented 16%. Consequently, advanced processes (including 7nm and below) constituted 59% of total wafer sales.
Wei Cheng expressed great confidence in the company's 3nm advanced process, asserting that the N3P process outperforms competitors' 18A processes in terms of cost and technological maturity. He highlighted that TSMC's N3 process technology leads the industry in several key areas, including PPA (Performance, Power, and Area) characteristics. In Q3, 3nm process contributed 6% to the company's wafer sales, and it is expected to exhibit strong demand in high-performance computing and smartphone applications. Overall, 3nm is projected to contribute a mid-single-digit percentage to annual wafer revenue in 2023.
Cheng also emphasized that TSMC is planning to release improved processes within the N3 technology family, including N3E, N3P, and N3X. N3E extends the 3nm family, offering enhanced performance, power efficiency, and yield. N3E has already achieved verification and is slated for mass production in Q4 2023. N2 process technology has garnered significant customer interest in high-performance computing and smartphone applications and is anticipated to be a leading-edge semiconductor technology in terms of density and energy efficiency when it enters mass production in 2025.
3. Market Conditions
Cheng acknowledged that the earlier revision of this year's semiconductor revenue forecast was driven by a weaker-than-expected recovery in the mainland China economy, with terminal demand not growing as initially anticipated. However, he also noted that AI demand remains robust, and there are signs of a rebound in smartphone and personal computer demand. Furthermore, the ongoing development of electric vehicles is expected to generate strong demand in the automotive electronics sector.
Regarding the recent expansion of U.S. export restrictions on advanced AI chips to mainland China, Cheng acknowledged potential shipping challenges, but he expressed confidence that the impact on TSMC would be manageable.
4. Progress of Overseas Manufacturing Facilities
TSMC provided updates on its international manufacturing initiatives. The company plans to establish a joint venture semiconductor facility in Dresden, Germany, specializing in 22/28nm special processes. Construction is expected to commence in the latter half of 2024, with mass production slated for the latter half of 2027. In Japan, the Kumamoto facility began equipment installation this month, and mass production is expected in 2024.
In the United States, the Arizona fab is accelerating its setup, aiming for mass production in 2025. The first-phase fab in Arizona has seen improvements, with nearly 1,100 local employees hired, and the company plans to continue recruiting local talent with a target to commence mass production in 2025. The Japanese facility will mainly focus on producing 12nm, 16nm, 22nm, and 28nm technologies, with local employees receiving training in Taiwan, and production is expected to begin before the end of 2024.
