Apple chip supplier TSMC expects a return to ‘healthy growth’, backing hopes for global tech recovery in 2024

TSMC, the world’s largest contract chip manufacturer, projected revenue growth of at least 8 per cent to US$18.8 billion in the March quarter
The Taiwanese company’s outlook comes after a years-long slump in tech demand

Taiwan Semiconductor Manufacturing Company (TSMC)

Bloomberg

Published: 4:38pm, 18 Jan 2024

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Taiwan Semiconductor Manufacturing Co (TSMC) expects a return to solid growth this quarter and gave itself room to raise capital spending this year, suggesting the world’s most valuable chip maker anticipates a recovery in smartphone and computing demand.

The main semiconductor supplier to Apple and Nvidia Corp projected revenue growth of at least 8 per cent to US$18.8 billion in the March quarter, versus expectations for around US$18.2 billion. It is also budgeting capital expenditure of US$28 billion to US$32 billion, potentially up from US$30 billion in 2023.

The Taiwanese company’s outlook, while not quite surpassing the most bullish estimates, comes after a years-long slump in tech demand. But signs of a recovery for the chip-making sector have emerged in recent weeks. The Semiconductor Industry Association estimated chip sales increased in November after more than a year of declines.

TSMC chief executive C C Wei reiterated that he expects a return to “healthy growth” this year.

The Taiwan Semiconductor Manufacturing Co logo seen atop a building at the Hsinchu Science Park in Hsinchu, Taiwan, on January 9, 2023. Photo: Bloomberg

TSMC, which also counts Android chip design firm Qualcomm among its biggest customers, got a boost from frenzied demand for Nvidia’s artificial intelligence (AI) processors in 2023.

It reported net income for the fourth quarter of NT$238.7 billion (US$7.6 billion), beating the average analyst estimate. Revenue was US$625.5 billion, TSMC reported earlier, matching the previous holiday quarter and arresting a series of falls.

“Our business has bottomed out on a year-over-year basis, and we expect 2024 to be a healthy growth year for TSMC,” Wei said.

TSMC’s revenue should grow in the low- to mid-20 per cent range this year, he said. That marks a rebound from the modest decline of last year.

Chip-making giant TSMC halts revenue drop on brisk AI demand

“TSMC could lead global chip foundries through 2023-24 industry headwinds, thanks to growing AI chip demand and migration to next-gen process nodes such as N3 in second half of 2023 and N2 by 2025,” Bloomberg Intelligence analyst Charles Shum said in a research note.

“Although the smartphone and PC chip market remains stagnant, TSMC’s advanced packaging tech, both 2.5D and 3D, fortifies its position in the contract-chip making market, allowing a potential return to a 53 per cent gross margin following a brief second-half downturn.”

Over the course of 2023, TSMC moderated its capital expenditure plans as the consumer electronics industry grappled with a glut of unsold inventory.

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But uncertainty persists. This month, fellow contract semiconductor maker Samsung Electronics posted its sixth successive quarter of declining operating profit, as it weathered the impact of muted consumer demand in its own smartphone and memory chip businesses.

Questions also overshadow mainland China, the world’s largest computing, smartphone, internet and semiconductor market.

Apple – long one of TSMC’s most important customers – faced headwinds with its latest generation of iPhones.

Several analysts downgraded Apple on expectations of soft demand, and Jefferies has said the iPhone sales slump in China is likely to deepen. The US company has also been hit by a widening ban on foreign-device use among Chinese government agencies and state-owned enterprises.