This year‘s revenue may decline by 6 TSMC Kaohsiung 28nm factory will switch to advanced manufacturing, inventory adjustment will continue until Q3, and annual capital expenditure will remain unchanged!
Time:2023-04-24
Views:1032
Source: Xinzhixun Author: Xinzhixun Langke Sword
On April 20th, TSMC, the leading manufacturer of wafer foundry, officially released its financial report for the first quarter of 2023. It also revealed concerns about whether the Kaohsiung 28nm wafer factory will be suspended, whether capital expenditures will be reduced this year, and progress in the 3nm process and overseas factory construction.
Q1 performance below financial forecast
TSMC‘s revenue in the first quarter was approximately NT $508.63 billion, an increase of 3.6% year-on-year and a decrease of 18.7% month on month; The net profit after tax is approximately NT $206.9 billion, an increase of 2.1% year-on-year and a decrease of 30.0% month on month; The earnings per share are NT $7.98. The gross profit margin is 56.3%, the operating profit margin is 45.5%, and the net profit after tax is 40.7%.
In US dollars, TSMC‘s revenue for the first quarter of 2023 was 16.72 billion US dollars, a decrease of 4.8% compared to the same period in 2021 and a decrease of 16.1% compared to the previous quarter.
In addition, TSMC‘s wafer shipments in the first quarter were 3.227 million pieces (approximately 8 inch wafers), a decrease of 12.8% compared to the previous quarter.
From the first quarter financial data released by TSMC, overall, it is lower than TSMC‘s previous financial measurement targets. However, TSMC explained during the legal briefing that if the revenue in US dollars is 16.72 billion US dollars, the revenue in the first quarter is up to standard, exceeding the forecast range of 16.7 billion to 17.5 billion US dollars.
5nm revenue accounted for 31%, with only automotive electronics applications maintaining year-on-year growth
From the revenue share of TSMC‘s various processes in the first quarter, 5nm accounted for the highest proportion, reaching 31%, 7nm accounted for 20%, 16nm accounted for 13%, and 28nm accounted for 12%. The revenue share of advanced processes at 7nm and below reached 51%, but it has decreased from 54% in the previous quarter.
From an application perspective, HPC has the highest revenue share at 44%, with smartphones accounting for 34%, IoT accounting for 9%, and automotive electronics accounting for 7%. In terms of growth rate, only automotive electronics maintained a positive growth rate of 5%, while most other applications experienced a year-on-year decline of over 10%.
The inventory adjustment will continue until the third quarter, and the annual revenue will decline by 1% to 6%
Based on this, TSMC expects a consolidated revenue of $15.2-16 billion in the second quarter, a decrease of 4.3% to 9% month on month, and a year-on-year decrease of 11.9% to 16.3%. If the exchange rate is calculated at 1 US dollar to 30.4 New Taiwan dollars, the operating gross profit margin is between 52% to 54%, and the operating profit margin is between approximately 39.5% to 41.5%.
Prior to this, TSMC believes that inventory will begin to decline in the fourth quarter of 2022, and inventory depletion will accelerate in the first half of this year. However, due to the continued weakness of terminal demand, the time for semiconductor inventory reduction was longer than previously expected. Customer inventory increased rather than decreased in the first quarter, and demand recovery in Chinese Mainland was also lower than expected after the unblocking. TSMC expects the inventory adjustment to continue into the third quarter, which has also led chip manufacturers to reduce their wafer foundries. In the first half of the year, revenue also decreased from the expected mid high single digit year-on-year decline to -10%. However, in the second half of the year, due to the resumption of momentum from customer new product launches, operations in the second half of the year will be better than in the first half.
Based on this, TSMC has also revised down its annual US dollar revenue forecast, from a slight increase originally estimated, to a year-on-year decrease of 1% to 6%.
TSMC has also lowered its outlook for the global wafer foundry market this year, from an estimated 3% year-on-year decline to a 7-9% year-on-year decline. By comparison, TSMC‘s performance will still outperform the overall wafer foundry industry average after lowering its US dollar revenue forecast for this year.
In terms of advanced packaging, TSMC believes that the demand for advanced packaging in 2023 is also weak, accounting for about 6% to 7% of its total revenue, which will be lower than 7% in 2022, and its growth rate will be better than the average within 5 years.
3nm yield is very good, supply exceeds demand
Although TSMC announced successful mass production of the 3nm process at the end of last year, it did not contribute to revenue based on the first quarter financial report.
According to recent reports from foreign media, Apple originally planned to introduce M3 chips based on TSMC‘s 3nm process for the first time in the upcoming new 15 inch MacBook Air laptop. However, there have been changes in the plan, and the laptop will still use the previous M2 series chips. This also means that the production of TSMC‘s 3nm process will be delayed, and it may need to wait until the mass production of the A17 series processor on the high-end iPhone 15 series in the third quarter.
TSMC President Wei Zhejia stated that TSMC‘s 3nm (N3) process has good yield and demand exceeds supply. It is expected to bring significant revenue contribution from the third quarter and maintain full capacity production this year. The revenue contribution of 3nm this year is approximately a median single digit percentage (4-6%). As for the subsequent N3E process at 3nm, the main customers include smartphones and HPC computing. The certification has been completed and will enter mass production in the second half of the year.
Wei Zhejia emphasized that although inventory adjustments continue, it has been observed that both N3 and N3E have many customers involved, and the final product design volume in the first and second years of mass production is more than twice that of 5nm (N5).
In terms of the more advanced 2nm (N2) process, the research and development progress is currently smooth, and mass production will be scheduled for 2025. N2 adopts a nanosheet transistor structure, which can provide the best performance, cost, and technological maturity. Due to the excellent energy efficiency demonstrated by nanosheet technology, N2 performance and power consumption efficiency can be improved by one generation to meet the increasing demand for energy-saving computing. It has been observed that N2 has attracted a lot of customer interest in HPC and smartphone applications. When the 2nm process was launched, density and energy efficiency were the most advanced in the industry, and the technology leading range was expanded.
Kaohsiung 28nm Wafer Factory to Transform to Advanced Process
Last week, there were rumors in the industry that due to a weaker than expected recovery in the semiconductor market, TSMC Kaohsiung, Nanke, Zhongke, and Zhuke all reported a slowdown in production expansion plans and a reallocation of production capacity.
Rumors have it that the mechanical and electrical engineering bid for TSMC‘s Kaohsiung factory, which was originally scheduled to open in January this year, has been postponed by one year, and the related clean room and installation work will also be postponed. This also means that TSMC‘s Kaohsiung factory‘s 2024 mass production plan will be postponed by about a year. In addition, the list of machines planned to be purchased by TSMC Kaohsiung for 28nm process production has also been completely cancelled. According to data, TSMC originally planned to build two wafer factories in Kaohsiung, including 7nm and 28nm factories.
So has TSMC‘s Kaohsiung 28nm wafer factory been suspended or cancelled?
In response, TSMC President Wei Zhejia stated at the legal conference that TSMC will continue to invest in Taiwan, and the Kaohsiung factory has started construction but will revise its investment direction. The original 28nm investment plan will be changed to a more advanced process.
Regarding the progress of overseas factory establishment, Wei Zhejia stated that the 4nm production capacity of TSMC‘s US factory will enter mass production in 2024, and the second phase of the wafer factory will enter mass production in 2026. Since the cost of factory establishment in the United States includes labor, inflation, operating costs and learning curve, which is 4-5 times that of Taiwan, China, China, it will also have geo elastic pricing through supplier cooperation and government subsidies, which can reduce the impact on profits. The US chip bill subsidy comes with conditions and is actively negotiating with the US government, but the timetable has not been completed.
The Japanese factory mainly focuses on mature special processes and will also start mass production in 2024. The overall capital expenditure is about 8 billion US dollars, and the Japanese government will subsidize 50%, which will be gradually obtained as the production expansion process progresses;
The new 28nm capacity of the Chinese Mainland Nanjing Plant will be gradually opened, but the order receiving production will fully comply with the relevant legal restrictions;
The plan to establish a factory in Germany has not yet been determined, and negotiations are currently underway with partners and local governments to focus on mature special processes for automotive use.
TSMC stated that it is currently expanding its global manufacturing footprint to increase customer trust, expand growth potential, and reach out to more international talents. At present, the US factory has recruited more than 900 employees, the Japanese factory has recruited more than 300 employees, and Taiwan, China still plans to recruit 6000 employees this year.
3nm depreciation, electricity price increase, and other impacts on gross profit margin
TSMC stated that the decline in gross profit margin in the first quarter was mainly affected by low capacity utilization and unfavorable exchange rate factors, but some of the impact was offset by strict cost control. Strict control of expenses and reduced employee dividends also led to a decrease in overall expenses.
Although TSMC did not disclose the specific decline in capacity utilization. However, according to previous reports from American foreign investment, due to the continued sluggish demand in terminal markets such as mobile phones, TSMC‘s 7nm production capacity utilization rate was 45% to 50% in the first half of this year, and only 55% in the second half of this year. In addition, the estimated utilization rate of TSMC‘s 5nm production capacity in the second half of the year will be significantly reduced from the previously expected 90% to 92% to 75%.
Wei Zhejia also pointed out that the challenge of TSMC‘s gross profit margin is not only inflation issues such as rising costs for Taiwan‘s public utilities such as electricity prices, but also reduced capacity utilization due to the adjustment of semiconductor business cycles, 3nm mass production, although warmly received by clients, will also begin to bring huge depreciation and amortization pressure, as well as the expansion of overseas production bases with higher costs.
In response to the impact of electricity price increases, Wei Zhejia pointed out that since the 15% increase in electricity prices in the second half of last year, TSMC‘s electricity prices in Taiwan have increased by 17% since April 1 of this year, which is expected to reduce the gross profit margin by about 0.6 percentage points in the second quarter.
Wei Zhejia expects that the impact of rising electricity costs on TSMC will continue into the second half of this year and will dilute TSMC‘s annual gross profit margin by approximately 0.5 percentage points.
TSMC Chief Financial Officer Huang Renzhao emphasized that the company will continue to control costs.
Wei Zhejia emphasized that TSMC will continue to create value while committed to optimizing internal costs to maintain profitability in 2023. If uncontrollable exchange rate factors are excluded, the company‘s long-term gross profit margin of over 53% is still an achievable goal.
Huang Renzhao stated that TSMC did not sign long-term contracts with customers, and the way to capture customers is to focus on fundamental aspects such as technology manufacturing; TSMC has collected advance payments from customers, which is the cash flow required to support the company‘s capital expenditures.
Capital expenditure remains unchanged throughout the year
TSMC expected its annual capital expenditure to decline for the first time in nearly eight years, from approximately $32 billion to $36 billion, down from $36.3 billion in 2022, at its legal conference in January this year. TSMC emphasized at the time that the company continued to invest in research and development, and it is estimated that research and development expenses will increase by about 20% this year.
However, due to a slower than expected recovery in the semiconductor market and a decline in capacity utilization, coupled with the cancellation of all 28nm machine purchases at the front end of TSMC‘s Kaohsiung factory, as well as rumors of slower expansion of production at science, technology, and bamboo factories, it is believed that TSMC may reduce its capital expenditure to $28 billion to $32 billion this year.
Regarding this, TSMC Chief Financial Officer Huang Renzhao stated that although the short-term semiconductor market is still affected by external factors and TSMC has moderately tightened its capital expenditure in response to increased uncertainty, TSMC‘s annual capital expenditure plan is focused on supporting the structural growth of customers in the coming years. Therefore, maintaining the original plan, TSMC‘s annual capital expenditure will be maintained at $32-36 billion.
However, due to the needs of 5nm and 3nm customers, many devices can be shared. If demand quickly recovers in the future, it will also flexibly increase capital expenditure and equipment supply to cope with industry changes.
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