Bilgesu Erdem
Taiwan Semiconductor Manufacturing Company (TSMC) disclosed its third-quarter financials, indicating a 24.87% decrease in net income compared to the previous year, landing at NT$211 billion. However, this slide was counteracted by a 13.7% quarter-on-quarter revenue jump, pegging third-quarter revenue at NT$546.73 billion, surpassing expectations.
The decline in profitability was linked to diminished consumer electronics demand, a trend evident since the pandemic’s onset. Interestingly, the company’s 3-nanometer technology saw robust demand, while their 5-nanometer technology also enjoyed heightened interest.
Trend Analysis: Semiconductor Sectorโs Future Outlook
One notable trend from the data is the gradual market recovery, specifically in the smartphone domain. The global smartphone market saw a lesser decline of 1% in Q3 2023 compared to an 11% dive during the second quarter. Canalys reports attribute this shift to regional recoveries and new product demands.
TSMC, globally recognized for producing advanced processors for giants like Apple and Nvidia, largely based on Arm architecture, foresees their future revenue streams being influenced by their 3-nanometer technology. Plans are already afoot for the initiation of 2-nanometer mass production by 2025.
While TSMC enjoys the surging demand for AI chips, thanks to the proliferation of comprehensive language models, it still grapples with the ebbing demand in the consumer electronics segment. The potential AI growth still doesn’t compensate for the overall cyclicality of their business.
External Factors & Forecasts
Recent geopolitical developments have also played a role. TSMC was granted an extension from U.S. trade sanctions imposed on China, permitting continued advanced chip equipment shipments for their Chinese operations.
The future, however, seems cautiously optimistic. CEO C.C. Wei of TSMC anticipates 2024 to be a year of robust growth for the company. The resurgence is expected to be spearheaded by the smartphone and PC sectors. Notably, this projection also aligns with Wei’s observations of demand stabilization in these markets.
Yet, investor sentiments remain tentative. ASML, TSMC’s tool supplier, flagged a potential stasis in its 2024 sales, reflecting the overarching uncertainty in the sector. Accordingly, TSMC has prudently adjusted its capital expenditure for the current year, with the preceding quarter witnessing a 13% capital spending reduction.
The semiconductor industry, with TSMC at its forefront, is poised at a crucial juncture. While immediate profitability might seem challenging, the underlying indicators hint at a potentially resilient market. As demand stabilizes and new technological frontiers are explored, the sector may well experience an upswing. Only time will confirm the trajectory.
