Looking at the ASML earnings from the day before yesterday and the TSMC earnings from yesterday together is quite interesting. ASML grew revenue 30% this year on the back of mainland China DUV sales; TSMC barely held up with advanced nodes, with revenue down 10% this year; next year ASML growth may dip below 10%, while TSMC could see a rebound of 10%+; this divergence may be because logic recovers ahead of memory, or because logic recovery is stronger than memory.
TSMC Q3 Earnings:
Revenue was $17.28B in USD terms, down 15% year over year and up 10% sequentially, the third consecutive quarter of decline. In NTD terms, revenue was NT$546.73B, down 11% year over year and up 14% sequentially, the second consecutive quarter of decline.
Gross margin was 54.3%, down 6.1 percentage points year over year and 0.2 percentage points sequentially.
Operating income was $7.21B in USD terms, down 25% year over year and up 9% sequentially, for an operating margin of 42%.
Net income was $6.7B in USD terms, down 28% year over year and up 13% sequentially, for a net margin of 39%.
Equivalent 12-inch wafer shipments were 2,902K, down 27% year over year and 10% sequentially, the fourth consecutive quarter of decline; ASP was ~$5,954, up 17% year over year, the 15th consecutive quarter of year-over-year growth.
Capex was $7.1B in USD terms, down 19% year over year; full-year capex lowered to $32B, with 70% for advanced nodes, 20% for mature nodes, and 10% for advanced packaging and test.
Looking specifically at process technology and platforms in Q3:
3nm accounted for 6%, 5nm 37%, 7nm 16%, 16nm 12%, 20nm 1%, 28nm 10%, 40/45nm 6%, 65nm 6%, 90nm 1%, 0.11/0.13um 3%, 0.15/0.18um 4%, 0.25um+ 1%; advanced nodes (3nm/5nm/7nm) accounted for 59%.
This quarter N5 growth came mainly from HPC and smartphone; HPC is AI, smartphone is seasonal; 7nm demand weakened more than expected, somewhat reminiscent of 28nm in its day; TSMC expressed confidence in filling 7nm and 6nm capacity through RF, connectivity chips and other specialty demand, returning to healthy utilization over the next few years.
HPC accounted for 42%, smartphone 39%, IoT 9%, auto 5%; HPC share exceeded smartphone for the 4th consecutive quarter. Smartphone up 33% sequentially on iPhone 15 launch; HPC up 6% sequentially; IoT up 24% sequentially; auto down 24% sequentially.
Auto revenue declined in H2 this year due to inventory correction; TSMC expects a return to growth in 2024.
Outlook:
Q4 revenue guided to $18.8-19.6B, down 2-6% year over year, slightly better than prior full-year guidance of a 10% decline; gross margin guided to 51.5-53.5%, operating margin to 39.5-41.5%.
Expect fabless inventory to approach healthy levels in Q4; PC and smartphone showing signs of recovery; believe TSMC will see healthy growth in 2024, but a sharp rebound is premature.
N3 demand exceeded expectations, continues to grow in Q4; this year revenue mix mid-single digits, higher next year; N3E volume production in Q4, followed by N3P, N3X iterations; N3P PPA comparable to Intel 18A, but earlier release and lower cost than peers.
Expect future smartphone growth to lag overall company growth; HPC will be the primary growth driver; backend business growth expected to slightly exceed overall company growth.
CoWoS capacity tight in the near term; target of 2x capacity increase next year unchanged, with expansion continuing through 2025. SoIC will start generating revenue next year and become one of the fastest-growing advanced packaging solutions over the next few years.
Expect capex growth to flatten over the next few years. This does not mean investment amounts will decrease, but capital intensity is expected to decline over the next few years.
N2 volume production in 2025; HPC backside-power N2 sampling in H2 2025, volume production in 2026.
Europe fab focused on auto/industrial 12/16/22/28nm, construction H2 2024, volume production 2027; US fab 4nm volume production H1 2025; Japan fab 12/16/22/28nm equipment move-in starting this month, volume production end of 2024; Nanjing fab expected to obtain permanent authorization.
Will not slow technology development; may slow capacity expansion based on customer demand.
Overall, TSMC remains very steady, once again confirming the semiconductor industry bottom; many tech stocks (including semiconductors) will begin to slowly recover in Q3. TSMC's better-than-expected N3 performance also confirms that advanced nodes are not lacking a market.