TSMC: 80% Capacity, 3nm at 60-70k/mo by 2023-end

In the year 2023, the semiconductor industry faced challenges in achieving the anticipated full recovery during the second quarter. Reports indicate that TSMC (Taiwan Semiconductor Manufacturing Company) remains cautiously optimistic about the industry's outlook. Although industry inventory levels reached a near-bottom point in the fourth quarter, a V-shaped rebound is deemed premature. However, TSMC foresees robust growth in 2024, propelled by healthier inventory conditions, a resurgence in the automotive market, and a surge in demand for AI components.

Semiconductor equipment manufacturers project that TSMC's full-year USD revenue decline is expected to outperform the previously estimated 10%. Overall production capacity utilization is steadily increasing towards the end of the year, with estimations pointing towards an 80% utilization rate in the first half of 2024.

This positive outlook is attributed to a gradual recovery in end-user demand and a substantial increase in AI component demand. Major industry players such as MediaTek, Qualcomm, NVIDIA, AMD, Google, among others, are actively expanding their production scale. TSMC continues to maintain a competitive edge in process technologies below 7nm, outpacing competitors like Samsung Electronics and Intel, with no significant indications of customers diverting orders.

Another contributing factor is the growing proportion of TSMC's revenue derived from the production of processes below 7nm, featuring quotes exceeding $10,000, further bolstered by the strength of the US dollar. Capitalizing on the upswing in orders for advanced processes below 7nm and Chip-on-Wafer-on-Substrate (CoWoS) orders, and in response to substantial orders secured for 2024, TSMC is reactivating shipments within specific equipment and material supply chains.

Industry observers note that TSMC's recovery is not solely attributed to the robust US dollar and sustained high quotes for advanced process manufacturing. A significant influence stems from the peak in shipments of Apple's new iPhone, commencing from July this year. Mass production of the 3nm process, valued at $20,000, has commenced, driven by demand for NVIDIA's AI chip series.

Anticipated developments in the fourth quarter include the release of chips such as MediaTek's Dimensity 9300 and Qualcomm's Snapdragon 8 Gen 3, alongside continuous expansion of AI chip production capacity from companies like NVIDIA, AMD, and Intel. This is expected to contribute to the steady increase in TSMC's utilization rate for high-priced 4/3nm production capacity.

Projections indicate that by the end of this year, TSMC's utilization rate for 7/6nm production capacity will hover around 70%, while 5/4nm is poised to approach 80%. Monthly production capacity for 3nm is estimated to range between 60,000 to 70,000 wafers by year-end, with Apple as the sole customer in full-scale production. As Apple expands its product lineup and other manufacturers, such as NVIDIA, Qualcomm, and MediaTek, enter the 3nm era in the second half of 2024, TSMC's monthly production capacity for 3nm is projected to reach 100,000 wafers by the end of 2024. However, due to the extended learning curve, the 3nm family is expected to continue exerting pressure on profit margins in 2024.

Notwithstanding, the dominance of advanced processes below 7nm, constituting 59% of TSMC's revenue, with 5/4nm accounting for 37%, has resulted in a 7-percentage point increase in profitability compared to the second quarter, establishing it as the most profitable process for TSMC.