TSMC's 3-Nanometer Technology and Expansion Plans for 2024

2024-01-19

TSMC's Q4 2023 earnings call took place on January 18, 2024, with key participants including Jeff Su, Wendell Huang, C. C. Wei, and Mark Liu. During the call, the company shared its financial highlights for the fourth quarter, which included a 14.4% increase in revenue. However, there was a decrease in gross margin to 53%, and the earnings per share (EPS) stood at NT$9.21. Notably, the 3-nanometer process technology contributed 15% of wafer revenue, while advanced technologies accounted for 58% of total wafer revenue in 2023.

In terms of revenue distribution, the HPC segment accounted for 43% in the fourth quarter, followed by the Smartphone segment at 38%. IoT represented 8% of the revenue, while Automotive accounted for 6%. However, it is worth mentioning that revenue for the Smartphone, IoT, and DCE segments decreased on a full-year basis in 2023.

At the end of the fourth quarter, TSMC's cash and marketable securities balance amounted to NT$1.7 trillion. The company saw a decrease in current liabilities by NT$56 billion, and the accounts receivable days decreased by four days to 31 days. Cash generated from operations reached approximately NT$395 billion, with NT$170 billion allocated to capital expenditures (CapEx).

TSMC's capital management objective is to fund the company's organic growth, generate good profitability, preserve financial flexibility, and distribute a sustainable and steadily increasing cash dividend to shareholders. Despite a decline of 8.7% in revenue in 2023, TSMC plans to allocate between US$28 billion and US$32 billion for its capital budget in 2024. Furthermore, 70% to 80% of this budget will be dedicated to advanced process technologies.

Looking ahead to 2024, TSMC expects a healthy growth year with quarter-over-quarter growth and a full-year revenue increase of low-to-mid 20% in U.S. dollar terms. The company's 3-nanometer technology is considered the most advanced in terms of power, performance, and yield. Additionally, the overall semiconductor market is forecasted to grow by more than 10% in 2024, with the surge in AI-related demand supporting TSMC's position in the AI market.

TSMC's 2-nanometer technology, known as N2, has garnered significant interest and engagement. The company plans to commence volume production of N2 in 2025. As for its mature node technology, TSMC aims to develop specialty technology solutions in collaboration with strategic partners. The demand for 28-nanometer technology is expected to be supported by various types of specialty technologies.

In line with its mission to be the trusted technology and capacity provider for the global logic IC industry, TSMC intends to expand its global manufacturing footprint. This includes the construction of a specialty technology fab in Germany and the evaluation of a second fab in Japan. Moreover, TSMC plans to increase its 3-nanometer capacity in Taiwan Science Park and establish multiple fabs for 2-nanometer technologies in Hsinchu and Kaohsiung Science Parks.

During the Q&A session, TSMC addressed various topics, including capital management, revenue growth, technology decisions, AI chips, gross margin concerns, advanced packaging, and overseas expansion plans. The company provided insights into its strategies, outlook, and commitment to meeting customer demand. The Q4 2023 earnings call offered valuable information for investors and stakeholders interested in TSMC's performance and future plans.