I wish I could have been there. The ones I have attended in the past are quite the production. The Taiwan press treats TSMC like rockstars. Here are the prepared statements:
Year-over-year, fourth quarter revenue was essentially flat while net income and diluted EPS both decreased 19.3%. Compared to third quarter 2023, fourth quarter results represented a 14.4% increase in revenue and a 13.1% increase in net income. All figures were prepared in accordance
with TIFRS on a consolidated basis.
In US dollars, fourth quarter revenue was $19.62 billion, which decreased 1.5% year-over-year but increased 13.6% from the previous quarter. Gross margin for the quarter was 53.0%, operating margin was 41.6%, and net profit margin was 38.2%.
In the fourth quarter, shipments of 3-nanometer accounted for 15% of total wafer revenue; 5- nanometer accounted for 35%; 7-nanometer accounted for 17%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 67% of total wafer revenue.
“Our fourth quarter business was supported by the continued strong ramp of our industry-leading 3-nanometer technology,” said Wendell Huang, VP and Chief Financial Officer of TSMC. “Moving into first quarter 2024, we expect our business to be impacted by smartphone seasonality, partially offset by continued HPC-related demand.”
Based on the Company’s current business outlook, management expects the overall performance for first quarter 2024 to be as follows:
• Revenue is expected to be between US$18.0 billion and US$18.8 billion; And, based on the exchange rate assumption of 1 US dollar to 31.1 NT dollars,
• Gross profit margin is expected to be between 52% and 54%;
• Operating profit margin is expected to be between 40% and 42%.
The management further expects the 2024 capital budget to be between US$28 billion and US$32 billion.
And here is CC Wei's opening statement:
First, let me start with our 2024 outlook. 2023 was a challenging year for the global semiconductor industry, but we also witnessed the rising emergency of generative AI related applications with TSMC as a key enabler.
In 2023, weakening global macroeconomic conditions and high inflation and interest rate exaggerate and prolong the global semiconductor inventory adjustment cycle. Concluding 2023, the semiconductor industry excluding memory industry declined about 2%, while foundry industry declined about 13% year-over-year. TSMC's revenue declined 8.7% year-over-year in U.S. dollar term. Despite the near-term challenges, our technology leadership enable TSMC to outperform the foundry industry in 2023 while we are positioning us to capture the future AI and high-performance computing related growth opportunities.
Entering 2024, we forecast fabless semiconductor inventory to have returned to a higher level exceeding 2023. However, macroeconomic weakness and geopolitical uncertainties persist, potentially further weighing on consumer sentiment and the end market demand.
Having said that, our business has buttoned out on a year-over-year basis and we expect 2024 to be a healthy growth year for TSMC, supported by continued strong ramp of our industry-leading 3-nanometer technologies, strong demand for the 5-nanometer technologies and robust AI-related demand. Coming off the steep inventory correction and low base of 2023. For the full year of 2024, we forecast the overall semiconductor market, excluding memory to increase by more than 10% year-over-year.
While foundry industry growth is forecast to be approximately 20%. For TSMC, supported by our technology leadership, a broader customer base, we are confident to outperform the foundry industry growth. We expect our business to grow quarter-over-quarters throughout 2024 and our full-year revenue expect to increase by low-to-mid 20% in U.S. data terms.
Next, let me talk about our N3 and N3E ramp-up and progress. Our 3-nanometer technology are the most-advanced semiconductor technology in both PPA and transistor technology. As a result, almost all the world's smartphone and HPC innovators working with TSMC on 3-nanometer technologies. Our N3 successfully entered volume production and enjoy a strong ramp in second half '23, accounting for 6% of our total wafer revenue in 2023. N3E further leveraged the strong foundation of N3 to extend our N3 family with enhanced performance, power, and yield. N3E has already into volume production in the fourth quarter of 2023.
Supported by robust demand from customers in both smartphone and HPC applications, we expect revenue from our 3-nanometer technology to more than triple in 2024 and account for mid-teens percentage of our total wafer revenue. We also continue to provide further enhancement of our N3 technology, including N3P and the N3X. With our strategy of continuous enhancements of our 3-nanometer process technologies, we expect strong multiyear demand from our customers and are confident that our 3-nanometer family will be another large and long-lasting node for TSMC.
Now I will talk about the AI-related demand and our N2 status. The surge in AI-related demand in 2023 supports our already strong conviction that the structural demand for energy-efficient computing will accelerate in an intelligent and connected world. TSMC is a key enabler of AI applications. No matter which approach is taken, AI technology is evolving to use more complex AI models, as the amount of computation required for training and influence is increasing. As a result, AI model need to be supported by more powerful semiconductor hardware, which requires use of the most advanced semiconductor process technologies.
Thus, the value of TSMC technology position is increasing and we are well-positioned to capture the major portion of the market in terms of semiconductor component in AI. To address unassessable AI-related demand for energy-efficient computing power, customers rely on TSMC to provide the most leading-edge processing technology at scale with a dependable and predictable cadence of technology offering.
At the same time, as process technology complexity increased the engagement lead time with customer also started much earlier. There is almost all the AI innovators are working with TSMC and we are observing a much higher level of customer interest and engagement at N2 as compared with N3 at a similar stage from both HPC and the smartphone applications.
Our 2-nanometer technology will adopt narrow sheet transistor structure and be the most advanced semiconductor technology in the industry in both density and energy efficient when it is introduced in 2025. Our N2 technology development is progressing well with device performance and yield on track or ahead of plan. N2 is on track for volume production in 2025 with the ramp of similar to N3.
As part of our N2 technology platform, we also developed the N2 with backside power rail solution, which is better suited for specific HPC applications based on performance, course, and maturity considerations and we expect at power rail will be available in the second half of 2025 to customers with production in 2026. With our technology of continuous enhancement, N2 its derivative will further extend our technology leadership position and enabled TSMC to capture the AI-related course opportunities going to the future.
Finally, let me talk about our specialty technology strategies at mature mode. For TSMC today around 70% of our total revenue is 16-manometer and more advanced node, which ranging contribution from 3-nanometer and 2-nanometer technologies in the next several years. This number will only increase. Our mature node exposure is a run 20% of our total revenue.
TSMC's strategy at mature node is to what we closure with strategic partner to develop specialty technology solutions to mid-customers the requirement and create differentiated and long-lasting where you to customers. Now focus is to pure higher capacity for specialty technologies rather than just a nominal capacity. To the development of the differentiated specialty technologies, the profitability of our mature node can be around our corporate average gross margin.
Looking ahead, we forecast 28-nanometer will be the sweet spot for our embedded memory applications and we expect our long-term structural demand at 28-nanometer to be supported by multiple types of specialty technologies. Thus, we are expanding our 28-nanometer specialty manufacturing capacity overseas to support the long-term structural market demand. We believe demand for the differentiated specialty technology will remain steady despite the potential industry capacity increase and our utilization rate and structural profitability, and but you all know can be well protected in the future.
And Mark Lui's final statement:
Thank you, C.C. Good afternoon, everyone. First, let me talk about our global manufacturing footprint update. TSMC's mission is to be the trusted technology and capacity provider for the global logic IC industry for years to come. In today's fractured globalization environment, our strategy is to expand our global manufacturing footprint to increase our customer trust, expand our future growth potential, and reach for more global talent. Our overseas decision are based on our customers' needs and a necessary level of government subsidy or support. This is to maximize the value for our shareholders.
Firstly, in Japan, we are building a specialty technology fab in Kumamoto, which will utilize 12-nanometer, and 16-nanometer, and 22-nanometer, and 28-nanometer process technologies. We will hold an opening ceremony for this fab on February '24, next month. And volume production is on track for the fourth quarter of 2024.
In Arizona, we are in close and constant communication with U.S. government on incentive and tax credit support and making strong progress in facility supply chain infrastructure, utility supply, and equipment installation for our first fab. We continue to work closely and develop strong relationships with our local union and trade partners in Arizona, including recently signed an agreement with Arizona Building and Construction Trades Council our new framework for cooperation. This agreement extends our collaboration across enhanced workforce training and development, shared commitment to site safety, hiring local workers, and establishing regular communication. It is a win-win for all parties.
We are well on track for volume production of N4, or 4-nanometer process technology in first half of '25 and are confident that once we begin operations, we will be able to deliver the same level of manufacturing quality and reliability in Arizona as from our fabs in Taiwan.
In Europe, we plan to build a specialty technology fab invest in Germany, focusing on automotive and industrial applications with our joint venture partners. We continue to be in close communication with the German federal, state, and city governments and their commitment to this project remains strong and unchanged. Fab construction is scheduled to begin in Q4 2024 this year.
In Taiwan, of course, we continue to invest in and expand our advanced technology capacities to support our customers' needs and their growth. Given the robust multiyear demand for our 3-nanometer technologies, we are expanding our 3-nanometer capacity in Taiwan Science Park. We are also preparing our N2 volume production starting in 2025. We plan to build multiple fabs or multiple phases of 2-nanometer technologies in both Hsinchu and Kaohsiung Science Parks to support a strong structural demand from our customer C.C. just mentioned.
In Kaohsiung Science Park, the government approval process is ongoing and is also on track. While the initial cost of overseas fab, I previously mentioned are higher than TSMC's fab in Taiwan. We are confident to manage and minimize the cost gap and remain committed to deliver profitable growth and maximize the value for our shareholders.
Now let me talk about my retirement. On December 19th last year, I announced that, I have decided not to seek nomination of Board members for the next term and will retire from the company after the 2024 Annual Shareholders Meeting in June. Allow me to say this, over the past 30 years, I have been incredibly fortunate to be able to work at and contribute to TSMC.
I started at TSMC 30 years ago as a leader of a small four-person fab construction team. It has been my privilege to serve as Chairman of TSMC and after our legendary Founder, Dr. Morris Chang, over the last six years. During this time, we have reaffirmed our commitment to our mission, to be the trusted technology and capacity provider to the global logic IC industry for years to come, while adhering to our core values of integrity, commitment, innovation, and customer trust.
TSMC's success is predicated on providing the industry's most leading-edge processing technology at scale, in a most efficient and cost-effective manner, to enable all the innovators to successfully offer their best products to the world. We together have worked diligently to enhance our focus on our technology leadership, competitiveness, global manufacturing footprint, digital excellence, sustainability, and corporate governance to maximize the value for our customers and our shareholders. The past 30 years with TSMC has been an extraordinary journey for me and I want to extend my sincerest thanks to our incredible, talented team and all our TSMC's colleagues whose diligence, dedication, and can-do spirit have made the company into what it is today.
Now TSMC's nomination, corporate governance and sustainability committee of the board has recommended Dr. C. C. Wei to succeed as the company's next Chairman, subject to the election of the incoming board in June 2024. If Dr. Wei is elected to be Chairman, he should also continue in his current role as CEO. Supported by a deep and experienced team of Senior Executives, many of whom have been with TSMC for many, many years.
As I look ahead to spend more time with my family and starting the next chapter of my life after my -- our AGM in June, I remain fully confident in TSMC's strategy, leadership, and execution and firmly believe TSMC will continue to perform outstandingly in the years ahead.
Thank you for your trust in TSMC, and the best is yet to come for the company and its shareholders. This conclude my messages and our key messages together. Thank you for your attention.
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