Strong Demand for Ai Chips Propels Tsmc to Beat First-quarter Revenue and Profit Expectations

Taiwan Semiconductor Manufacturing Company (TSMC) surpassed revenue and profit forecasts in the first quarter, driven by robust demand for advanced chips, particularly those utilized in AI applications.

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In comparison to the LSEG consensus estimates, TSMC's first-quarter results were as follows:

• Net revenue: 592.64 billion New Taiwan dollars ($18.87 billion), exceeding the expected NT$582.94 billion
• Net income: NT$225.49 billion, surpassing the anticipated NT$213.59 billion
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TSMC reported a 16.5% year-over-year increase in net revenue to NT$592.64 billion and an 8.9% rise in net income to NT$225.49 billion. The company projected first-quarter revenue to fall within the range of $18 billion to $18.8 billion.

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As the world's leading producer of advanced processors, TSMC boasts prominent clients like Nvidia and Apple.

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Wendell Huang, the CFO, stated during the earnings call that TSMC anticipates strong demand for industry-leading 3-nanometer and 5-nanometer technologies in the second quarter of 2024, albeit partially offset by continued smartphone seasonality.

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CEO C.C. Wei expressed optimism regarding 2024, anticipating it to be a "healthy" growth year propelled by TSMC's technological prowess and expanded customer base.

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Wei highlighted the company's collaboration with AI innovators to meet the surging demand for energy-efficient computing power. TSMC foresees a significant revenue contribution from server AI processors, expected to more than double this year.

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For the second quarter, TSMC expects revenue to range between $19.6 billion and $20.4 billion.

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TSMC currently manufactures 3-nanometer chips and plans to commence mass production of 2-nanometer chips by 2025. Shrinking nanometer sizes typically result in more potent and efficient chips.

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The skyrocketing demand for AI chips, driven by the proliferation of large language models like ChatGPT and Chinese counterparts, has propelled TSMC's shares up by 56% over the past year.

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Brady Wang, associate director at Counterpoint Research, highlighted TSMC's robust performance based on key industry trends, emphasizing the positive outlook for both short and long-term growth.

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TSMC's dominance in the foundry market is evident, accounting for 61% of global foundry revenue in the fourth quarter, according to Counterpoint Research data, with Samsung Foundry trailing at 14%.

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Grzegorz Drozdz, market analyst at Conotoxia, noted TSMC's exceptional net profit margin, standing at 40%, significantly surpassing the industry average of 14%. This margin reflects TSMC's strong competitive position, driven by increased sales of 7nm and smaller chips with higher margins.

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Last year, TSMC faced challenges due to macroeconomic headwinds and inventory adjustments. However, despite setbacks like the recent earthquake in Taiwan, which temporarily disrupted operations, TSMC expects minimal impact on revenue, with most lost production anticipated to be recovered in the second quarter.

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Furthermore, TSMC's Arizona subsidiary received preliminary approval for government funding worth up to $6.6 billion to develop advanced semiconductors, demonstrating its commitment to innovation and growth.

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