TSMC Earnings: Canary in the Coal Mine, Competition in Process Technology
On the latest episode of The Circuit, Ben Bajarin and Jay Goldberg discuss how TSMC earnings give us indications into market trends, pockets of recovery, and how a coming battle in process technology is looming between TSMC and Intel.
Steady Performance Across the Board
TSMC reported solid results that were slightly better than expected.Their production, process technology, and margins all remain healthy. While some end markets like smartphones have been weak recently, TSMC sees signs of improvement as inventory congestion clears.
Leading-Edge Nodes Gaining Traction
TSMC’s latest 3nm node already accounts for 6% of revenue, ahead of where 5nm was at a similar point. This suggests strong demand from Apple and others for their most advanced process technology. Their target of 53% gross margins also remains achievable despite ramping new nodes.
Capital Expenditures Moderating
After record high levels of spending in recent years, TSMC is being more conservative with its capital expenditures. This helps maintain margins but could be risky as demand rises for leading-edge nodes like 3nm and upcoming 2nm. Competition from Samsung and Intel’s re-entry as a foundry customer in 2024 may also impact TSMC’s capacity.
Geopolitical Factors Increasing Costs
TSMC acknowledged that manufacturing outside of Taiwan comes at a higher cost due to talent availability, supply chain maturity, and other factors. Their new US fabs will likely require higher pricing to maintain margins. Partnerships with governments and local suppliers will be crucial to manage costs.
Outlook on AI and Packaging
TSMC sees AI driving demand for larger chip designs, which is positive as it means more silicon content per chip. But they need to improve their capabilities around advanced packaging, which will be key to delivering on these AI chips composed of multiple chiplets.
In summary, TSMC maintains its pole position in the foundry market but faces increasing challenges from competition and technology transitions in the years ahead. Their earnings call provides valuable perspective on the dynamics shaping the semiconductor industry today.