TSMC: 3nm Revenue Soars, Eyes 20%+ 2024 Growth, $28B Capex.

On the afternoon of January 18th, Taiwan Semiconductor Manufacturing Company (TSMC), a leading semiconductor foundry, conducted its quarterly earnings conference to elucidate its performance for the fourth quarter of 2023 and unveil expectations for the first quarter and full year of 2024. The overall performance of TSMC and its market outlook exceeded market expectations, signaling a perceived conclusion to the global semiconductor downturn.

· Q4 Net Profit Decline of 19.3% YoY:

In Q4 2023, TSMC's consolidated revenue reached approximately NT$6,255.3 billion, maintaining near parity with the previous year and setting the third-highest historical record. However, net profit after tax experienced a 19.3% YoY decline, totaling around NT$2,387.1 billion. Earnings per share were NT$9.21 (equivalent to $1.44 per American Depositary Share), marking a 19.3% YoY decrease. Sequentially, revenue increased by 14.4%, while net profit after tax grew by 38.2%.

In USD, TSMC's Q4 2023 revenue was $196.2 billion, a 1.5% YoY decrease but a 13.6% sequential increase. The gross margin for Q4 was 53.0%, operating margin was 41.6%, and net profit margin after tax was 38.2%.

· 67% Revenue from Advanced Processes (7nm and below):

Analyzing revenue distribution across different processes, TSMC observed an increase in the contribution of its 3nm process to 15%, 5nm process at 35%, and 7nm process at 17% in Q4 2023. The aggregate revenue from advanced processes, including 7nm and below, accounted for 67%.

Regarding application areas, high-performance computing (HPC) contributed 43% of revenue in Q4 2023, marking a substantial 17% increase from the previous quarter. Smartphone revenue share also increased to 43%, reflecting a 27% growth from Q3 2023. Notably, the automotive chip business contributed 5% to revenue in Q4.

· Customer Distribution and 2024 Capital Expenditure:

TSMC disclosed that in Q4 2023, 72% of its customers were based in North America, with 11%, 8%, 5%, and 4% from mainland China, Asia-Pacific, Japan, and EMEA (Europe, Middle East, and Africa) respectively.

Looking ahead, TSMC anticipates capital expenditure for the full year of 2024 to be between $320 billion and $280 billion. About 80% will be allocated to advanced processes, 10% to specialty processes, and the remaining 10% to advanced packaging, testing, masks, and other capacity needs.

· 2024 Revenue Growth Target:

TSMC's performance outlook for 2024 is optimistic. For Q1 2024, the expected revenue is between $18 billion and $18.8 billion. When converted to NT dollars, this range is approximately NT$5,846.8 billion to NT$5,598 billion, representing a decrease of 8% to 4% compared to Q4 2023. Gross margin is forecasted to be between 52% and 54%, with operating margin between 40% and 42%.

TSMC attributes the expected rise in capacity utilization in 2024 to business recovery. The company anticipates the N3 process to contribute significantly to revenue, surpassing the levels seen in 2023. While N3 is expected to slightly dilute gross margin by 3-4 percentage points for the full year, TSMC plans to use N5 equipment to support part of the N3 capacity in the medium to long term, aiming for higher capital efficiency. The majority of this transition is expected in the second half of the year, resulting in a 1-2 percentage point dilution of TSMC's gross margin.