To The Moon

Leading semiconductor foundry $Taiwan Semiconductor Manufacturing(TSM)$ released its fourth quarter financial report for 2023, with performance exceeded expectations and positive news at the conference call.

Specifically, TSMC's revenue was $19.624 billion in the fourth quarter last year, a slight decline of 1.5% year-on-year, exceeding the management's guidance of $18.8-19.6 billion, and an increase of 13.6% compared with the third quarter of last year:

In terms of process technology, 3nm process contributed 15% of the total wafer revenue in the fourth quarter; 5nm contributed 35% of the total wafer revenue, up 3% from the same period in 2022; 7nm contributed 17% of the total wafer revenue, down 5 percentage points from the same period in 2022.

In terms of advanced process technology, TSMC's revenue from 7nm and below processes contributed to a record high of 67% of the total wafer revenue:

By platforms,

• The revenue High Performance Computing (HPC), which includes PC, data center and AI GPU segments, contributed 43% of total revenue in the fourth quarter, up 17% from the third quarter of last year;

• The revenue from Smartphone contributed 43% of total revenue, an increase of 27% in the third quarter, mainly due to the end of the inventory clearing in the mobile phone industry, and mobile phone manufacturers actively restocking inventories;

• The revenue from IOT, DCE (digital consumer electronics) and Others contributions was relatively small, and had minimal impact on the overall results;

• It is worth noting that the Automotive chip business, the fourth quarter contributed 5% of total revenue, an increase of 13% in the third quarter, mainly driven by the development of new energy vehicles:

It is obvious that the locomotive of TSMC's future performance growth is AI chips, mobile phones, electrical imagination inventory and automotive chips, and IOT and other businesses account for relatively small revenue, and there is little room for growth, which will not be the main source of revenue for TSMC.

Although TSMC's revenue in the fourth quarter declined slightly, its gross margin in the fourth quarter was 53%, a significant decrease of 9.2% from the same period in 2022, due to lower capacity utilization and 3nm process climbing. The net profit margin also decreased from 47.3% to 38.1% :

The decline in profitability is within expectations. Compared with management's previous guidance, gross margin in the fourth quarter fell within the guidance range, and operating margin is beyond the guidance ceiling:

Overall, TSMC's quarterly results beat expectations.

Looking forward to the first quarter of 2024, TSMC's revenue guidance range is between $18-18.8 billion, and the median calculation is that the revenue will increase by 10% year-on-year. This will reverse TSMC's previous trend of declining revenue for four consecutive quarters.

In terms of gross profit margin, the guidance is 52%-54%, which is a slight increase from the previous quarter.

The company expects full-year revenue growth of 20% to 25% year-over-year in 2024, with compound revenue growth of 15% to 20% in the next few years.

Management said at the earnings conference call that there is currently strong long-term customer demand for 3nm processes, and 3nm revenue is expected to double this year!

At the same time, the company predicts that the utilization rate of annual production capacity will increase in 2024, the industry inventory will return to a healthy level, and the capital expenditure in 2024 is expected to reach $28-32 billion, higher than the market expectation of $28.86 billion!

It is worth noting that the semiconductor industry is obviously cyclical, and capital expenditure changes greatly. Such as October last year, the company had predicted that the capital expenditure of 2023 will be $32 billion, but in fact it only reached $30.45 billion:

Although there are significant changes, it cannot be denied that the semiconductor industry has ushered in a cyclical reversal. The new round of growth will come from AI, PCs and mobile phones restocking inventories, automotive chip explosions.

Thanks to TSMC's world-leading manufacturing process and increasing contribution from advanced processes to revenue, it is expected that TSMC valuation end will hit a record high in this round of semiconductor business cycle!