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TSMC Raises 2022 Outlook to 35% - Q2 2022 Results - Earnings Call Transcript

Daniel Nenni

Admin
Staff member
Simply amazing. After spending the week at the Design Automation Conference and Semicon West I have never been more positive on the semiconductor industry, absolutely. Long term I see no issue with semiconductor supply and demand. TSMC will grow 35% this year! In 2023 my guess is half of that (15-20%) due to inventory corrections. TSMC outpaces the overall semiconductor industry but, contrary to other analysts, I see the semiconductor industry back to mid single digit growth. AI will be the new driver and that plays well into the TSMC leading edge growth plans. We will never have enough performance or memory for AI and AI will touch just about every vertical market that we track.

It was mentioned that CAPEX will be at the lower end of the $40-44B due to equipment shipment delays. Does anyone know what equipment they might be talking about? EUV or DUV? Other? I'm wondering if this "shipment" delay is an opportunity to slow capacity builds and prevent oversupply? It will be interesting to see what the equipment people say also Intel, Samsung, and GF.


Second quarter gross margin increased 3.5 percentage points sequentially to 59.1%, slightly ahead of our guidance, as we enjoyed a more favorable foreign exchange rate, cost improvement and value selling.

5-nanometer process technology contributed 21% of wafer revenue in the second quarter while 7-nanometer accounted for 30%. Advanced technologies, which are defined as 7-nanometer and below, accounted for 51% of wafer revenue.

All six platforms increased in the second quarter. Smartphone increased 3% quarter-over-quarter to account for 38% of our second quarter revenue. HPC increased 13% to account for 43%. IoT increased 14% to account for 8%. Automotive increased 14% to account for 5%. And digital consumer electronics increased 5% to account for 3%.

We believe the current semiconductor cycle will be more similar to a typical cycle, with a few quarters of inventory adjustment likely through first half 2023. We have also internally modeled and prepared ourselves for various different scenarios in case it is necessary.

Despite the ongoing inventory correction, our customers' demand continues to exceed our ability to supply. We expect our capacity to remain tight throughout 2022 and our full year growth to be mid-30% in U.S. dollar terms.

Three key factor in supporting TSMC's strong structural demand are our technology leadership and differentiation, our strong portfolio in high-performance computing and our strategic relationship with customers. All of these factors are TSMC's strength in the foundry industry.

Next, let me talk about the tool delivery update. As a major player in the global semiconductor supply chain, TSMC work closely with all our tool supplier to plan our CapEx and capacity in advance. However, like many other industries, our suppliers have been facing greater challenges in their supply chains, which are extending toward delivery lead times for both advanced and mature nodes. As a result, we expect some of our CapEx this year to be pushed out into 2023.

Now let me talk about the N3 and N3 status. Our N3 is on track for volume production in second half of this year, fiscal year. We expect revenue contribution starting first half of 2023, with a smooth ramp in 2023, driven by both HPC and smartphone applications.

Our N2 technology development is on track and progressing well to our expectation, with risk production schedule in 2024 and volume production in 2025. After careful evaluation and extensive period of development, our 2-nanometer technology will adopt the narrow sea transistor structure to provide our customers with the best performance, cost and technology maturity.

N2 deliver full node performance and power benefited to address the increasing need for energy-efficient computing, with 10 to 15 speed improvement at the same power or 20% to 30% power improvement at the same speed and larger density of more than 20% increase as compared with N3E. Our 2-nanometer technology will be the most advanced semiconductor technology in the industry in both density and energy-efficient when it is introduced and will further extend our leadership position well into the future.

Q&A:

Yes. It seems like TSMC already has a very high exposure on the ARM base. So can we expect the next few years still a growth driver to more come from the X86?

C. C. Wei
We have very high exposure to X86 also.

Intel is coming, absolutely!

With the higher cost, how our negotiations and discussions with governments? How our negotiations and discussions with customers about this cost differential?

Mark Liu
Okay. Gokul, yes. Yes, I did mention that the cost in the fab in the U.S. is higher than we expected. We are still in the construction stage of the fab. And during this past two years, we found that the labor cost in the States is higher than we planned. And also, some of the COVID supply chain interruption also was an unexpected. And we did confer this information to the government at the location, give them a full perspective of the cost gap.

But Gokul, is indeed the -- our customer in U.S., they all want to load that fab. I mean, this is the needs from our customers. And we also believe there is ample -- amplify our business opportunity at there. So the cost is increasing, but cost is not the only factors. And we are still working on the government subsidy and we'll continue working on the cost reduction. And every company have different ways to reduce the cost. So that is the work in the process.

Would TSMC consider any type of joint venture fab in the U.S. for outsourcing? He notes we have done certain JVs in the past. So is this something we will consider in the U.S. for outsourcing opportunities?

Mark Liu
Yes. Let me answer this question again. This -- our -- yes, TSMC indeed has some joint venture arrangement maybe 20 years ago within U.S. But right now, we understand -- with that experience, we understand, our customers' demand will go up and down. And we don't -- and also, we don't want to limit this fab into a specific set of customers. It's open to the RO customer base to utilize. So no, at this point, we do not plan to have a joint venture arrangement in the U.S.

Okay. And then his second question is on N2. He wants to know, for HPC applications on N2, what is the percentage or that may adopt a chiplet architecture approach?

C. C. Wei
I cannot release the number. But let me assure you that the number of the customers using the chiplet in the N2 or the 2-nanometer technology will start to increase and that will become a major approach in the 2-nanometer and the following technologies.
 
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In the past, you can notice that C.C. Wei tried to be conservative in his speaking tone and wording, in order not to give investors too much expectation. That's a very typical Taiwanese attitude (to be low profile.)

Yesterday C.C. Wei's tone was different. Does anyone feel the same as I do? ?
 
In the past, you can notice that C.C. Wei tried to be conservative in his speaking tone and wording, in order not to give investors too much expectation. That's a very typical Taiwanese attitude (to be low profile.)

Yesterday C.C. Wei's tone was different. Does anyone feel the same as I do? ?

I listened to the conference call and I still feel TSMC executives, including C.C. Wei, are trying to tone down the excitement.

I do feel the strong confidence they try to communicate throughout the earnings conference.
 
1. "Our N3 is on track for volume production in second half of this year with Goodyear."


What does "with Goodyear" mean?



2. "We expect the fabless DOI to come down in the second half of the year gradually. And your second question"

What is DOI?
 
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1. "Our N3 is on track for volume production in second half of this year with Goodyear."


What does "with Goodyear" mean?



2. "We expect the fabless DOI to come down in the second half of the year gradually. And your second question"

What is DOI?

I believe he was saying "good yields" instead of "Goodyear".

This is not the official transcript and there are some obvious errors that will be corrected in the official release.
 
I believe he was saying "good yields" instead of "Goodyear".

This is not the official transcript and there are some obvious errors that will be corrected in the official release.
Lol. I actually watched the YouTube several times to confirm.
 
In the past, you can notice that C.C. Wei tried to be conservative in his speaking tone and wording, in order not to give investors too much expectation. That's a very typical Taiwanese attitude (to be low profile.) Yesterday C.C. Wei's tone was different. Does anyone feel the same as I do? ?

I agree. The tone of this call to me was that of people who were doubted but took the high road and proved naysayers wrong with actions instead of words. I have experienced this feeling more than once and it is a good feeling.

Q2 semiconductor calls will be very interesting after this. Let's see what excuses are used now for bad leadership.
 
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I guess he missed the part about inventory levels being high?


I think he did.

"There is, however, one corner of the chip market where supply has exceeded demand. Wei said semiconductor demand from smartphone makers, computer manufacturers, and other companies that sell consumer electronics is starting to fade thanks to rising inflation and recession worries. TSMC and other companies have produced too many chips for personal electronics, and Wei predicted it would take at least until 2023 to sell off the glut of chips on the market. The excess supply could help bring down prices."
 
By this forecasted 35% yearly growth, TSMC may achieve $76 billion revenue in 2022. It's interesting that in February Intel also predicted its 2022 revenue will be $76 billion.

TSMC’s FY21 revenue was TW$1.59T (US$53.04B).

If TSMC’s FY22 revenue is 35% greater than FY21, their FY22 revenue will be TW$2.14T (US$71.60B).

In order for TSMC to reach a TW$2.27T (US$76.0B), their FY22 revenue growth rate would need to be 43.3%.

So, unless TSMC’s stated “mid-30’s percent” revenue growth rate is closer to mid-40’s (which of course would be absolutely awesome)......
 
TSMC’s FY21 revenue was TW$1.59T (US$53.04B).

If TSMC’s FY22 revenue is 35% greater than FY21, their FY22 revenue will be TW$2.14T (US$71.60B).

In order for TSMC to reach a TW$2.27T (US$76.0B), their FY22 revenue growth rate would need to be 43.3%.

So, unless TSMC’s stated “mid-30’s percent” revenue growth rate is closer to mid-40’s (which of course would be absolutely awesome)......

Due to the fluctuation of exchange rate, TSMC may or may not need to achieve higher growth rate in order to reach US$76 billion revenue in 2022. TSMC's 2021 revenue is US$56.82 billion, not $53.04 billion. Although you may choose to adjust it to the current exchange rate.

But we won't be able to know the exchange rate impact until the end of year and until TSMC's accountants calculate the "average" US dollar exchange rate they are going to use for revenue calculation on their financial reports.

It can become another interesting subject. For those big multinational companies, such as TSMC and Intel, they have all kinds of currency management programs to handle potential exchange rate risks and benefits.
 
Due to the fluctuation of exchange rate, TSMC may or may not need to achieve higher growth rate in order to reach US$76 billion revenue in 2022. TSMC's 2021 revenue is US$56.82 billion, not $53.04 billion. Although you may choose to adjust it to the current exchange rate.

But we won't be able to know the exchange rate impact until the end of year and until TSMC's accountants calculate the "average" US dollar exchange rate they are going to use for revenue calculation on their financial reports.

It can become another interesting subject. For those big multinational companies, such as TSMC and Intel, they have all kinds of currency management programs to handle potential exchange rate risks and benefits.

Given the +10-year rarity of last year’s USD/TWD exchange rate your analysis requires, my analysis has a much greater probability.
 
Given the +10-year rarity of last year’s USD/TWD exchange rate your analysis requires, my analysis has a much greater probability.

TSMC's reported and confirmed Q1 2022 revenue is US$17.57 billion. YoY growth 36%.

TSMC's reported and confirmed Q2 2022 revenue is US$18.16 billion. YoY growth rate 36.6%.

TSMC's Q3 2022 revenue guidance is between US$19.8 ~ 20.6 billion. Let's assume the average US$20.2 billion as the Q3 2022 revenue. Estimated YoY growth rate 35.75%.

To achieve the whole year revenue of US$76 billion, TSMC needs to make US$20.07 billion revenue in Q4 2022.

US$20.07B (Q4 estimate) = $76B (2022 whole year estimate) - $17.57B(Q1 2022 actual) - $18.16B (Q2 actual) - $20.2B (Q3, estimate)

Is US$20.07 billion Q4 2022 revenue and whole year US$76 billion revenue achievable? I believe it's very possible that TSMC can reach this goal. Base on the US$15.74 billion Q4 2021 revenue, Q4 2022 US$20.07 billion is merely a 27.57% increase over Q4 2021.

I think the major difference between your and my calculation is that I use the actual reported and confirmed Q1 and Q2 2022 US dollar revenue and Q3 estimate based on TSMC's guidance.

I don't think we can calculate the whole year revenue in US$ by using the whole year NT$ revenue and an arbitrary exchange rate. If we do so, TSMC's monthly and quarterly tax filings and financial reports will not match their yearly filing and report.
 
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TSMC's reported and confirmed Q1 2022 revenue is US$17.57 billion. YoY growth 36%.

TSMC's reported and confirmed Q2 2022 revenue is US$18.16 billion. YoY growth rate 36.6%.

TSMC's Q3 2022 revenue guidance is between US$19.8 ~ 20.6 billion. Let's assume the average US$20.2 billion as the Q3 2022 revenue. Estimated YoY growth rate 35.75%.

To achieve the whole year revenue of US$76 billion, TSMC needs to make US$20.07 billion revenue in Q4 2022.

US$20.07B (Q4 estimate) = $76B (2022 whole year estimate) - $17.57B(Q1 2022 actual) - $18.16B (Q2 actual) - $20.2B (Q3, estimate)

Is US$20.07 billion Q4 2022 revenue and whole year US$76 billion revenue achievable? I believe it's very possible that TSMC can reach this goal. Base on the US$15.74 billion Q4 2021 revenue, Q4 2022 US$20.07 billion is merely a 27.57% increase over Q4 2021.

I think the major difference between your and my calculation is that I use the actual reported and confirmed Q1 and Q2 2022 US dollar revenue and Q3 estimate based on TSMC's guidance.

I don't think we can calculate the whole year revenue in US$ by using the whole year NT$ revenue and an arbitrary exchange rate. If we do so, TSMC's monthly and quarterly tax filings and financial reports will not match their yearly filing and report.

After taking the average monthly exchange rate (from daily closing prices), and converting TSMC’s reported monthly revenue, using theses average daily exchange rates, FY21 revenue is TW$1.587T (US$56.829B).

Using the same average daily exchange rates, TSMC’s 1H22 revenue is TW$1.025T (UD$35.658B)

To get to US$76B, they’ll need another US$40.342B in 2H22, which is 13.05% greater than 1H22.

TSMC statistically (last 15 years) averages 14.5% greater 2H/1H revenue.

TSMC has a very good chance of reaching US$76B.

Good call hist78
 
After taking the average monthly exchange rate (from daily closing prices), and converting TSMC’s reported monthly revenue, using theses average daily exchange rates, FY21 revenue is TW$1.587T (US$56.829B).
Using the same average daily exchange rates, TSMC’s 1H22 revenue is TW$1.025T (UD$35.658B)
To get to US$76B, they’ll need another US$40.342B in 2H22, which is 13.05% greater than 1H22.
TSMC statistically (last 15 years) averages 14.5% greater 2H/1H revenue.
TSMC has a very good chance of reaching US$76B.
Good call hist78

This will happen, TSMC will pass Intel, my guess would be 2025 when N3 is completely dominating the industry in HVM.
 
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