TL;DR:
- TSMC’s Q4 revenue exceeded expectations, thanks to AI demand counteracting slow smartphone and laptop chip sales.
- December sales reached NT$176.3 billion, totaling NT$625.5 billion for the quarter.
- Despite industry challenges and a 4.5% revenue decline in 2023, TSMC remains optimistic.
- High-performance computing benefits from demand for AI chips, offsetting a slight Q4 decline.
- Samsung reports a sixth consecutive quarter of declining operating profit in contrast to signs of chip market growth.
- AI server farm upgrades and on-device AI applications are set to drive an IT replacement cycle.
- Apple faces headwinds, particularly in the Chinese market.
- TSMC’s adaptability in a dynamic market is a testament to its resilience and future potential.
Main AI News:
In the ever-evolving landscape of semiconductor manufacturing, Taiwan Semiconductor Manufacturing Co. (TSMC) has managed to defy market expectations. Despite a challenging fourth quarter, TSMC’s revenue showcased resilience, primarily driven by surging demand from artificial intelligence (AI) players. This unexpected boost managed to offset the sluggish sales of smartphone and laptop chips, marking a significant achievement for the Hsinchu-based chip giant.
TSMC, a key supplier to tech giants like Apple Inc. and Nvidia Corp., reported December sales of NT$176.3 billion ($5.7 billion), culminating in a quarter totaling NT$625.5 billion. This figure not only surpassed analysts’ estimates but also mirrored the earnings from the same period the previous year, which had set a high bar for TSMC’s quarterly performance. The consensus among analysts had projected sales of NT$616.2 billion over the last three months, making TSMC’s achievement all the more remarkable.
In the face of a challenging year for the consumer electronics industry, TSMC adopted a pragmatic approach, moderating its capital expenditure plans. This move came as the industry grappled with a glut of unsold inventory, but TSMC signaled that the trough in demand had been reached during the summer months. The company confidently anticipated a recovery in the run-up to 2024, buoying hopes for a brighter future. In 2023, TSMC’s overall revenue experienced a decline of 4.5%, amounting to NT$2.16 trillion.
Despite surpassing both analyst expectations and its own guidance, TSMC’s $20.2 billion quarter fell short of delivering substantial growth. December sales showed an 8.4% decline compared to the same month a year earlier, offering a mixed outlook for the year ahead. However, TSMC’s leadership, including Chief Executive Officer C. C. Wei, remained optimistic about the company’s prospects for the coming year. Notably, TSMC’s high-performance computing business has benefited from the surging demand for Nvidia and Advanced Micro Devices Inc.’s AI chips, providing a silver lining amidst market uncertainties.
In a parallel narrative, fellow chipmaker Samsung Electronics Co. reported its sixth consecutive quarter of declining operating profit. This downturn was attributed to subdued consumer demand in its smartphone and memory businesses. Nonetheless, the latest report from the Semiconductor Industry Association brought a glimmer of hope by revealing the first growth in chip sales in over a year, hinting at the gathering momentum for a resurgence in 2024.
Looking ahead, the IT landscape is set to witness a transformation fueled by upgrades to AI server farms and on-device AI applications. According to HSBC analysts Ricky Seo and Hankil Chang, an IT replacement cycle is on the horizon. They stated, “For US cloud service providers, we expect capex to grow significantly, about 65% in 2024e. Additionally, AI server purchases will likely total 57% of their investments in 2024e, up from 8% in 2022.” This forecast underlines the pivotal role AI is set to play in reshaping the tech industry.
Notably, Apple Inc., a cornerstone customer for TSMC, has faced its share of challenges with its latest iPhone generation, particularly in China, the world’s largest mobile market. Several analysts have downgraded Apple this year, citing expectations of soft demand. Additionally, Jefferies recently predicted a deepening iPhone sales slump in China. The US tech giant has also grappled with an expanded ban by Chinese agencies and state-owned companies, instructing staff to keep iPhones and other foreign devices away from work premises.
TSMC’s ability to adapt and thrive in a dynamic market landscape is a testament to its resilience and capacity to capitalize on emerging opportunities, especially in the realm of artificial intelligence. As we move into 2024, all eyes will be on TSMC to see how it navigates the ever-changing semiconductor industry and continues to shape the future of technology.
Conclusion:
TSMC’s ability to navigate market challenges and leverage AI demand showcases its resilience. The growth in AI-related businesses and the potential IT replacement cycle indicate a promising future for the semiconductor market. However, challenges faced by key customers like Apple in crucial markets should not be overlooked, warranting careful monitoring in the coming year.
