Last Thursday, the world’s largest producer of advanced processors reported its first quarter results, which were even better than expected, as demand for AI continues to be strong. Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), whose customers include AI chip leader NVIDIA Corporation (NASDAQ: NVDA) as well as tech titan Apple Inc (NASDAQ: AAPL), expects 2024 to be another year of healthy growth thanks to its technology leadership and broad customer base that also includes Advanced Micro Devices Inc (NASDAQ: AMD) and Qualcomm Incorporated (NASDAQ: QCOM).
First Quarter Highlights
For the quarter ended March 31, TSMC said its net revenue increased 16.5 percent year-on-year to NT$592.64 billion. Net profit increased 8.9% year-on-year to NT$225.49 billion.
The net profit margin continues to be one of the highest in the company’s history, at 40%, while the industry average is around 14%, reflecting TSMC’s competitiveness.
Nvidia prepares to become the TSMC of AI
Earlier in March, Nvidia clearly stated its goal of becoming the TSMC of AI as it continues its expansion beyond hardware, entering software services. At its annual conference, GTC 2024, Nvidia CEO Jensen Huang revealed new tools. In terms of AI development, Nvidia aims to do for the world exactly what TSMC is doing for the AI chip leader by transforming its design and concept into physical chips. Therefore, TSMC builds the chips that Nvidia, Apple and others need and Nvidia wants to become the AI maker, turning its customers’ concepts into a model they can take with them.
Second trimester orientation
For the current quarter, TSMC is supported by strong demand for cutting-edge 3-nanometer and 5-nanometer technologies, but this strength is partially offset by continued smartphone seasonality. TSMC forecasts second-quarter revenue in the range of $19.6 billion to $20.4 billion. Due to the recent earthquake in Taiwan and rising electricity costs, TSMC expects second-quarter gross margin to decline 1.1 percentage points to 52% at the midpoint. Fortunately, the April 3 earthquake did not cause any power outages or structural damage to the company’s facilities and critical tools such as the extreme ultraviolet (EUV) lithography system. One of its closest competitors, Intel Corporation (NASDAQ: INTC), lost its lead because TSMC was the first to adopt the EUV lithography systems essential to its leadership. Although some wafers were affected and had to be scrapped, most of the lost production is expected to be recovered in the current quarter, with minimal impact on revenue.
Outlook
With strong demand for AI, TSMC managed to withstand the pandemic-driven decrease in demand for electronics, propelling its stock to new highs. In 2025, TSMC plans to start mass producing its 2-nanometer chips, which are more powerful and more efficient than the current 3-nanometer chips. For the full year, TSMC estimates that the revenue contribution from server AI processors will more than double. For the full year, TSMC forecasts low-to-mid 20% revenue growth, assuming the AI market continues to grow while the PC market stabilizes and the smartphone market revives. with growth in an improved macroeconomic context. While TMSC may not keep pace with Nvidia in terms of near-term earnings due to its business moving beyond chips, it certainly won’t be in recovery mode like its customer Qualcomm after 2023. has put the smartphone market to sleep. sleep. Qualcomm is expected to report its second quarter financial results on May 1. Best known for making chips for smartphones, Qualcomm beat estimates with its first-quarter financial results and its next report is expected to reflect the recovery in activity as smartphone sales continue to recover.
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