Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chip maker, said on Thursday that demand for its capacity will remain strong throughout the year despite signs of weakening demand for computers and smartphones. The company saw its first-quarter revenue grow by 36 per cent year on year to US$17.57 billion on the back of strong demand from smartphone and car manufacturers. Net profits rose 45.1 per cent to NT$202.73 billion (US$7 billion) from the same period a year earlier, according to its financial results released on Thursday. TSMC’s chief financial officer Wendell Huang expects second-quarter revenue to be between US$17.6 billion and US$18.2 billion. TSMC CEO C.C. Wei, confirmed in a conference call with analysts on Thursday that its closely-watched next-generation N3 (3-nanometre) technology will enter production in the second half of this year to supply high-performance computing (HPC) applications and smartphones. TSMC expects its N3 chips to offer up to 15 per cent greater performance and up to 30 per cent less power consumption compared with its current N5 chips. Taiwan chip giant TSMC posts job ad for geopolitical analyst “We are on track for volume production of [N3] in the second half of 2022 with good yields, and we continue to see high levels of customer engagement at N3,” Wei said during the company’s conference call, adding that he expected more tape-outs on the 3nm node in the first year compared with its 5nm and 7nm nodes. N3, which will use the FinFET transistor structure, will be the most advanced foundry technology in terms of power, performance and area, according to Wei. Due to the complexity of initial profitability for leading-edge nodes, Wei said the N3 node would reach its average corporate gross margin in seven or eight quarters. “We are confident that our N3 family will be another large and long-lasting node for TSMC,” the executive said. The chip giant generated 50 per cent of its total first-quarter wafer revenue from advanced technologies, defined as those using 7nm or more advanced processes. These are the technologies used for chips in the world’s most advanced electronics. Apple’s A15 Bionic chip, used in the iPhone 13, uses the 5nm process. Shipments of 5nm semiconductors accounted for 20 per cent of total wafer revenue for the quarter, while 7nm semiconductors accounted for 30 per cent. TSMC is enjoying “brisk demand” for its N5 semiconductors, with 50 to 60 per cent sales growth, according to James Chen, chief analyst at Isaiah Research. Strong demand from Apple, for its mobile and M1 Mac processors, and AMD and Nvidia for HPC chips are contributing to continued growth this year, he said. Asked about higher inventory among TSMC customers, Wei said that there have been some signs of softening demand in the personal computer, tablet and smartphone market segments. However, he added that semiconductor demand in other markets such as automotive and power management remain robust. TSMC’s revenue from automotive-related applications grew 26 per cent over the previous quarter ended December, the highest growth rate among all six platforms, including smartphone, HPC, and the internet of things. Even if macroeconomic conditions worsen, though, Wei said TSMC does not plan to cut prices. Its capital expansion plan was based on long-term megatrends in several chip-related sectors, he said, so TSMC will not be heavily affected by a short-term downturn. “The global semiconductor industry is expected to see gradual demand and supply easing towards [the second half of 2022] due to a potential deceleration in demand and channel inventory build-ups,” said Kristine Lau, an analyst at global investment research firm Third Bridge. “While TSMC’s mature node pricing is not immune to cyclical fluctuations, we think its price positioning may be less impacted.” China to build global sourcing platform for semiconductors in Shenzhen Still, Wei admitted that TSMC suppliers are grappling with Covid-19-related disruptions to deliveries of equipment and materials, which will put pressure on delivery times for chip-making tools for both advanced and mature nodes. Wei said these constraints will not impact the company’s planned capital expenditure this year. Expenditures reached US$9.38 billion in the first quarter, up 6 per cent from US$8.84 billion in the same quarter last year. TSMC is targeting US$40 billion to US$44 billion in expenditures for the year. To deal with risks from Covid-19 and geopolitical tensions, TSMC has diversified its supply chain, according to Wei, ensuring procurement for materials such as neon, 40 per cent of which came from Ukraine before Russia invaded the country in February.