TSMC Q1 2024 profit thanks to strong demand for AI chips

Taiwanese semiconductor manufacturing company on Thursday beat sales and profit expectations in the first quarter, thanks to continued strong demand for advanced chips, especially those used in AI applications.

Here are TSMC’s first quarter results versus LSEG’s consensus estimates:

• Net income: € 592.64 billion new Taiwan dollars ($18.87 billion), versus NT$582.94 billion expected
• Net income:NT$225.49 billion, versus NT$213.59 billion expected

TSMC reported that net revenue increased 16.5% from a year ago to NT$592.64 billion, while net income increased 8.9% from a year ago to NT$225.49 billion. The firm guided sales for the first quarter between $18 billion and $18.8 billion.

TSMC is the world’s largest manufacturer of advanced processors and counts companies such as Nvidia and Apple among its customers.

“For the second quarter of 2024, we expect our business to be supported by strong demand for leading 3-nanometer and 5-nanometer technologies, partially offset by continued smartphone seasonality,” CFO Wendell Huang said during Thursday’s earnings call from the company. .

CEO CC Wei said TSMC expects 2024 to be a “healthy” growth year, supported by “our technology leadership and broader customer base.”

“Almost all AI innovators are working with TSMC to meet the insatiable AI-related demand for energy-efficient computing power,” said Wei, adding that the company estimates the revenue contribution of server AI processors to be “more than double this year.”

TSMC expects second-quarter revenue to be between $19.6 billion and $20.4 billion.

TSMC currently produces 3-nanometer chips and plans to begin mass production of 2-nanometer chips in 2025. A smaller nanometer size usually produces more powerful and efficient chips.

Strong demand for AI chips, led by the proliferation of major language models like ChatGPT and Chinese clones, has sent TSMC shares soaring 56% in the past year.

“TSMC is well positioned for strong performance based on key industry trends. Continued demand for advanced chips, especially those used in AI applications, is a positive sign for both the short and long term. The focus on advanced chip development such as the shift to 3nm technology is another factor driving long-term growth for TSMC,” said Brady Wang, associate director at Counterpoint Research, ahead of the results on Monday.

TSMC accounted for 61% of global foundry revenues in the fourth quarter, according to data from Counterpoint Research. Samsung Foundry came in second with 14% of the market.

“TSMC’s net profit margin remains one of the highest in the company’s history at 40%, against an industry average of 14%, demonstrating TSMC’s strong competitive position. The high margin is the result of a larger sales share of 7nm and smaller chips, which have significantly higher margins,” Grzegorz Drozdz, market analyst at Conotoxia, said last week.

Last year, TSMC’s business was impacted by macroeconomic headwinds and inventory adjustments. Smartphone and PC makers stockpiled chips during the pandemic, leading to excess inventory as demand waned in the Covid era.

Earlier this month, Taiwan was hit by an earthquake – the strongest in 25 years. A TSMC spokesperson said construction sites were normala at the first inspection, although workers at some factories were briefly evacuated. These employees then returned to their workplaces.

“There was no power shortage, no structural damage to our factories and no damage to our critical tools, including all of our extreme ultraviolet lithography instruments,” CFO Huang told investors and analysts on Thursday.

EUV machines are critical in the production of the most advanced processors.

However, some wafers were affected and “had to be scrapped,” Huang said, adding that the company expects most of the lost production to be restored in the second quarter, with “minimal impact” on sales.

The US also recently gave permission Preliminary approval of TSMC’s Arizona subsidiary for government funding worth up to $6.6 billion to build the world’s most advanced semiconductors. TSMC is also eligible for approximately $5 billion in proposed loans.