Taiwan Semiconductor Manufacturing(NYSE:TSM)is scheduled to announce Q1 earnings results before market opens on Thursday, July 14.
Latest Results
Its Q1 revenue was $17.57 billion, which increased 36.0% year-over-year and increased 11.6% from the previous quarter. The gross margin for the quarter was 55.6%, operating margin was 45.6%, and net profit margin was 41.3%.
Shipments of 5-nanometer accounted for 20% of total wafer revenue; 7-nanometer accounted for 30%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 50% of total wafer revenue.
Q2 Guidance
It expected an up to 37% jump in Q1 sales and said it expects chip capacity to remain very tight this year, amid a global crunch that has kept order books full and allowed chipmakers to charge premium prices.
Q2 Revenue will bebetween $17.6 billion and $18.2 billion, up from $13.29 billion a year earlier. Operating Profit Margin will be expected between 45% and 47%.
3 Most Important Things to Watch
1. TSMC Sales Soar 44% in Another Sign of Resilient Tech Demand
It booked NT$534.1 billion (US$17.9 billion or about RM79.38 billion) of revenue for the second quarter.
The results from Apple Inc’s most important chipmaker may allay investors’ worst fears about the impact of weakening demand and soaring costs on the US$550 billion semiconductor industry.
2. How Are 3-nanometer and 2-nanometer Going?
As previously confirmed by management, the advanced chip 3-nanometer will be entering volume production in 2H22, with revenue contribution starting in 2023. Apple will be amongst the first customers alongside Intel to use the latest technology for its M3 and A17 chips set to debut for iPhone, iPad and Macs in 2023.
In addition, N3E development is ahead of schedule. Though TSMC may consider early release, the exact timeline is yet to be confirmed. Qualcomm and MediaTek are expected to first adopt N3E for 5G flagship SoCs.
2-nanometer will be TSMC's first process node to use GAA transistors instead of FinFET (vs. Samsung already using GAA for 3-nanometer). Management expects risk production at the end of 2024 and volume production in 2H25, representing a roughly 3-year cadence from 3-nanometer.
It's worth noting that TSMC usually takes a cautious approach in developing new technology. This explains why the foundry giant is sticking with the more tried-and-true FinFET transistor structure until 2-nanometer. By 2025, TSMC will have 6 years of experience with ASML's EUV tools with projection optics with numerical aperture of 0.33 (used for 7nm and below). This should help reduce the risk of adopting a new transistor architecture.
3.PCs and Smartphones Are Slowing
It shouldn't come as a surprise that the pandemic has pulled in peak demand for PCs, smartphones and tablets. In March, TSMC warned of slowing PC and smartphone demand, and famous tech analyst Ming-Chi Kuo said Chinese Android smartphone brands have cut shipment plans by 20% thus far in 2022. In April, Baird downgraded Nvidia on excess GPU inventories, and Truist slashed price targets of both Nvidia and AMD on evidence of order cuts for 2Q22.
While the market is understandably concerned about a down cycle, demand in other end markets such as HPC may prove to be more structural than short-lived for TSMC. For instance, Nvidia's new GPUs (the Hopper architecture) will be using TSMC's 4nm process, migrating from Samsung's 8nm for the prior generation. Marvell is moving its infrastructure products to TSMC's N5 in 2022 and is developing new IPs for N3. Apple, besides ramping its M1 chips, is testing the new M2 chip on at least 9 Mac models and developing its own RF chips as well. Aiming to advance 5 nodes in 4 years, Intel is relying on TSMC for its next-generation GPUs.
Bottom line, while consumer electronics may be slowing, TSMC is seeing strong acceleration in HPC given its technology leadership.
Analyst Opinions
Bloomberg analyst Charles Shum believes the company may continue to keep its market share and profit margin far above peers over the next five years. Steady migration to next-generation process nodes such as N2 in 2025, and new specialty manufacturing capacity and 3D-packaging technology are the cornerstones of its long-term domination of the contract-chipmaking market and may help its long-term gross margin stay above 53%. For now, overseas capacity expansion will be front and center, especially in the US and Japan, as TSMC pushes to meet customers' diversification requests and rises to the challenge of growing competition from Samsung and Intel. A quick ramp-up in 3- to 5-nanometer production capacity, and rapidly rising equipment and material prices, are putting heavy pressure on its gross margin.
Susquehanna’s AnalystHosseini offered a $100 price target and issued a Neutral rating on it. He noted that the recent TSMC channel checks suggest the company remains on track to meet or exceed the Q2 2022 guide range. And He pointed out that they are postponing about $1 billion worth of 28/7nm wafer capacity additions – which is expected to drive its 2022 CAPEX to the lower end of its $40-$44 billion guidance range with prospects of flattish CAPEX trends in 2023.
Needham estimated TSMC's revenue growth rate may moderate to mid-teens level in 2023 as the company ramps up N3/N3E nodes, which will dilute corporate margins.As TSMC enters a head-to-head competition with Intel on 2nm, the valuation multiple may decline and stabilize at the 2017-2019 level around 18-20x. It lowed its price target to $125 and reiterated a buy rating.
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