To The Moon

$Taiwan Semiconductor Manufacturing(TSM)$

Sir Bahamut attended the TSMC analyst briefing, hoping to look for answers regarding the impact on latest US curb on China and geopolitical risks. But alas, TSMC management have been very vague about the current situation.

3Q22 highlight

1. Revenue growth of 14.9% (in NTD terms), but this was reported earlier as TSMC reports monthly revenue.

2. Strong Gross Margin and Operating Profit Margin of 60.4% and 50.6%, driven by better operation leverage and FX tailwind.

3. N5 ramp up strongly, from 21% revenue contribution to 28% revenue contribution. This is likely to keep growing in 2023, especially with key HPC clients.

4. Capex further trimmed by 10% from previous guidance of 40-44bil to 36bn for 4Q, mainly due to N7 capacity optimisation.

5. Impact from US restrictions is limited and only cover small portion of TSMC products.

6. TSMC secured 1 year authorization for semiconductor equipment procurement for their Nanjing fab in China, so investors should expect normal production at least for 1 year.

4Q22 Outlook

1. 4Q22 revenue guidance implies 0.4% q-o-q growth (at mid-point). This was higher than consensus, but much lower than prior expectation of 10% q-o-q growth.

2. GPM and OPM similar to 3Q22. Lower N7 fab utilisation offset by strong FX appreciation. This OPM guidance is still better than the consensus of 48%.

3. N3 is on track for volume production and revenues higher in the first year than N5. Current N3 demand is already higher than TSMC production capacity.

4. TSMC expects end-clients’ inventories to peak in 3Q22 and then undergoes inventory correction for a few quarters. N7/N6 utilisation rate will not be high due to softening demand of smartphone and PC clients, and utilization slack continue until 1H23. TSMC expects this to be a cyclical issue rather than a structural issue.

5. TSMC also indicated possibility of weakness from the automotive and data center sector in 2023.

Overall semiconductor industry will see a decline in 2023, but TSMC say 2023 will be a “growth” year for them (although the scale of this “growth” is very vague). In my opinion, TSMC downplayed the geo-political risk and impending semiconductor downcycle too much without addressing the current issues adequately. When asked about possible price cut for its chip in the downcycle, TSMC insist that its pricing will remain consistent. This is a sharp contrast to what market news are telling us that Apple and Nvida are refusing TSMC price hike in 2023.

I don’t expect this stellar 3Q22 results to bring much re-rating to the current share price for TSMC. The only hope investors can pray for is the US CPI data which will be released at 8.30pm Singapore time.

@Daily_Discussion@TigerStars