TSMC optimistic over premium chip demand despite revenue hit

TSMC optimistic over premium chip demand despite revenue hit

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Taiwan Semiconductor Manufacturing Company struck an optimistic note on demand for its highest-end chips, after reporting a decline in quarterly revenues amid weakening global demand.

The world’s biggest contract chipmaker said revenues of NT$547bn ($17bn) for its third quarter were down 11 per cent from the previous year. Net profit of NT$211bn was ahead of analyst estimates of NT$190bn, but 25 per cent lower than a year earlier. 

Revenues were hit by falling demand from automakers. Weaker than expected demand in China for electric vehicles, following the end of its lockdown restrictions late last year, has impacted component suppliers, including chip and battery makers. 

TSMC predicted demand from the automotive sector would rebound next year, with an acceleration in the shift to electric vehicles, which use more chips than those with traditional internal combustion engines.

One bright spot for TSMC came from its premium chips, including those at the 3-nanometre level of miniaturisation, which were adopted by Apple for its latest 15 Pro and Pro Max iPhones released last month. However, TSMC said the “ramp up” of 3nm production would continue to drag on profitability in the current quarter.

The Taiwanese company predicted strong demand for its future 2nm chip, with many more companies building generative artificial intelligence models that bring with them high computing and energy costs. TSMC chief executive CC Wei said there was strong demand for semiconductors with “increased power efficiency” and “the 2nm will be the most advanced tech in density and energy efficiency when introduced in 2025”.

Demand for AI chipsets “continues to grow stronger and stronger,” he said, while warning that TSMC had a “capacity limitation to support this demand”.

The chipmaker expects to spend $32bn on growing and upgrading its production capacity in 2023. It said construction of a €10bn plant in Dresden, Germany, which will produce chips for automotive and industrial clients, would begin in the second half of next year, with production commencing in late 2027.

CC Wei said “the situation was improving” in the construction of two fabs costing $40bn in the US state of Arizona, which had encountered delays. TSMC has struggled to find enough skilled workers for the installation of key advanced machinery. Wei added that 11,000 TSMC employees at the plants had received training, and production would start in 2025.

The company’s results follow the Biden administration’s tightening of export controls on cutting-edge AI chips, with rules first introduced in October 2022 updated. The changes will severely limit the ability of TSMC, Intel, Nvidia and other semiconductor suppliers to provide high-performance chips for China.

CC Wei said the new restrictions would not impact TSMC’s business in the short term, but it was assessing the long-term impact.

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