TSMC forecasts return to strong growth as global chip market recovers

Taiwan Semiconductor Manufacturing Company forecast a return to strong growth this year, with revenues expected to grow by up to 25 per cent as the global chip market pulls out of a deep trough.

“We expect 2024 to be a healthy growth year for TSMC, supported by . . . robust [artificial intelligence] demand,” CC Wei, chief executive of the world’s largest contract chipmaker, told investors on Thursday.

The company’s own growth outlook is more than double its forecast for the overall semiconductor market, which Wei said was likely to see an increase of more than 10 per cent.

TSMC forecast revenues in the current quarter would decrease by 6.2 per cent compared with the fourth quarter, to between $18bn and $18.8bn, in line with seasonal patterns. However, they were likely to increase each quarter after that, the company said.

In the three months to December 31, revenues from high-performance computing applications — which include generative AI — increased by 17 per cent quarter on quarter, while smartphone chip revenues jumped by 27 per cent and sales from automotive applications were up by 13 per cent.

The company’s capital expenditure is plateauing following a massive expansion of cutting-edge capacity in Taiwan and construction of fabrication plants, or fabs, in the US and Japan.

“The rate of increase of our capital spending has begun to level off as we start to harvest growth,” said Wendell Huang, chief financial officer. Capital expenditure would be between $28bn and $32bn this year, or flat compared with 2023.

The company reported a 19.3 per cent drop in net profit to NT$238.7bn ($7.6bn) for the fourth quarter compared with the same period a year earlier. The net earnings figure slightly exceeded the high end of TSMC’s guidance given three months ago.

Gross margins slid 9.2 percentage points compared with the fourth quarter of 2022 to 53 per cent, but TSMC said it was confident it could achieve an average gross margin above that level in the long term.

With TSMC’s rivals Intel and Samsung pushing ahead with the next generation of chip manufacturing technology, called N2, management hit back at some observers’ questions over whether TSMC could keep its lead over competitors.

It repeated its argument made three months ago that Intel’s 18A technology, due to enter mass production this year, could not be compared to TSMC’s N2 but was similar to its N3P, a technology the Taiwanese company already has in volume production.

“The other side’s claim might be right but only for their own product,” TSMC chair Mark Liu said, pointing to Intel’s so-called integrated device manufacturer business model under which it manufactures semiconductors for its own products and for other chip companies that create designs but do not have their own fabs.

“IDM typically only optimises their technology for their own product, while foundry optimises for their customers,” Liu said.