Taiwan Semiconductor Manufacturing Company: Navigating Challenges in the AI Sector
2023-08-01
TSMC, the leading semiconductor company, recently held an earnings call meeting to discuss the International Group and analyze their earnings. The meeting featured input from Charles Shi, an analyst from Needham and Company.
During the meeting, the company expressed a cautious outlook for the market, projecting a semiconductor growth of 4% to 5%. They acknowledged that longer-term growth, excluding memory, still needs to be evaluated. TSMC emphasized their significant market share, particularly in advanced technologies and outsourcing. The company's growth is driven by megatrends and their technology leadership. However, they revised their full-year guidance to a decline of around 10% due to weakness in the Chinese economy and overall market demand. This decline is impacting various segments, except for AI, which continues to show strong demand.
Several key drivers of TSMC's business were discussed during the meeting. These include customers' gross margin, market share, semiconductor growth, advanced node technology, technology leadership and differentiation, underlying structural megatrends, end market demand, AI processor demand, macroeconomic factors, and application weaknesses in the second half. These drivers have a significant impact on the company's revenue and overall performance.
TSMC shared their plans for their products and services, which include increasing customer trust and ensuring continued collaboration despite geopolitical concerns. They aim to maximize shareholders' value and strategically consider pricing. The company is focused on increasing capacity to meet customer demand and provide supply assurance. They are actively working with customers to increase capacity and share value. Additionally, they are observing the demand for AI semiconductors and assessing their potential impact on the market. TSMC believes that while AI may cannibalize data center processors in the short term, the long-term demand for AI processors will increase as cloud services generate AI service revenue. They also highlighted the high demand for ASICs in AI applications and emphasized their expertise in leading-edge technologies and large die sizes.
The competitive landscape in the semiconductor industry is evolving as companies strive to meet the increasing demand for AI-related products and technologies. The demand for AI semiconductors is growing, leading to aggressive booking of capacity by customers. This indicates a shift in the industry towards AI-focused technologies. TSMC, along with other companies, is working closely with customers to increase capacity and meet the supply needs for AI semiconductors. Leading-edge technologies and large die sizes are crucial for AI applications, which aligns with TSMC's strengths. Overall, the industry is experiencing a shift towards AI, and companies are adapting to meet this demand.
During the meeting, the most important Key Performance Indicators (KPIs) discussed were customers' gross margin, market share, semiconductor growth, and revenue guidance. It was noted that customers' gross margin may vary for specific customers and should not be assumed as constant. Market share was highlighted to include both advanced leading-edge technologies and outsourcing. The company projected a semiconductor growth of 4% to 5%, with a need for further evaluation of longer-term growth. Changes in the company's revenue guidance, which previously indicated a decline, were also addressed.
Looking ahead, TSMC expressed a positive outlook for the third quarter, expecting revenue growth and projected gross and operating margins. However, they anticipate challenges in 2023 due to lower capacity utilization, technology ramp-up, overseas expansion, and inflationary costs. Despite these challenges, the company aims to manage profitability through cost improvement efforts and emphasizing their value. They forecast a long-term gross margin of 53% and higher as achievable. TSMC also plans to be prudent in managing their business and tighten capital spending where appropriate.
In terms of capital spending plans, TSMC expects their expenditures for 2023 to be towards the lower end of the range of USD 32 billion to USD 36 billion.
Overall, TSMC's earnings call meeting provided valuable insights into the company's market outlook, growth drivers, product/service plans, and future challenges. As the semiconductor industry continues to evolve, TSMC remains focused on meeting customer demand, particularly in the AI sector, while managing profitability and capital spending effectively.