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TSMC Reports Second Quarter 2023

Daniel Nenni

Daniel Nenni

Admin
Staff member
HSINCHU, Taiwan, R.O.C., Jul. 20, 2023 -- TSMC (TWSE: 2330, NYSE: TSM) today
announced consolidated revenue of NT$480.84 billion, net income of NT$181.80 billion, and
diluted earnings per share of NT$7.01 (US$1.14 per ADR unit) for the second quarter ended June
30, 2023.

Year-over-year, second quarter revenue decreased 10.0% while net income and diluted EPS both
decreased 23.3%. Compared to first quarter 2023, second quarter results represented a 5.5%
decrease in revenue and a 12.2% decrease in net income. All figures were prepared in accordance
with TIFRS on a consolidated basis.

In US dollars, second quarter revenue was $15.68 billion, which decreased 13.7% year-over-year
and decreased 6.2% from the previous quarter.

Gross margin for the quarter was 54.1%, operating margin was 42.0%, and net profit margin was
37.8%.

In the second quarter, shipments of 5-nanometer accounted for 30% of total wafer revenue; 7-
nanometer accounted for 23%. Advanced technologies, defined as 7-nanometer and more advanced
technologies, accounted for 53% of total wafer revenue.
TSMC Q2 2023.jpg


a: 2Q2023 figures have not been approved by Board of Directors
b: Based on 25,929 million weighted average outstanding shares

About TSMC
TSMC pioneered the pure-play foundry business model when it was founded in 1987, and has been
the world’s leading dedicated semiconductor foundry ever since. The Company supports a thriving
ecosystem of global customers and partners with the industry’s leading process technologies and
portfolio of design enablement solutions to unleash innovation for the global semiconductor
industry. With global operations spanning Asia, Europe, and North America, TSMC serves as a
committed corporate citizen around the world.

TSMC deployed 288 distinct process technologies, and manufactured 12,698 products for 532
customers in 2022 by providing broadest range of advanced, specialty and advanced packaging
technology services. The Company is headquartered in Hsinchu, Taiwan. For more information
please visit https://www.tsmc.com.

# # #

TSMC Spokesperson:
Wendell Huang
Vice President and CFO
Tel: 886-3-505-5901

TSMC Deputy Spokesperson:
Nina Kao
Head of Public Relations
Tel: 886-3-563-6688 ext.712-5036
Mobile: 886-988-239-163
E-Mail: nina_kao@tsmc.com

Media Contacts:
Ulric Kelly
Public Relations
Tel: 886-3-563-6688 ext. 712-6541
Mobile: 886-978-111-503
E-Mail: ukelly@tsmc.com
 
Horrible earnings.

I wonder what it means for Intel an AMD? Likely very bad news for AMD, but Intel could be negative as well if it indicates the macro-economic conditions deteriorating further. Or it could mean they are gaining even more market share.

I guess we'll see soon. But, if Intel also collapses, and shows a sequential loss in revenue, that's going to be pretty shocking, and highly problematic for the company.

HPC surprises me the most, with all the AI chips they are making for NVIDIA. It must mean AMD and NVIDIA, particularly the latter since they are so much bigger, aren't doing that great with GPU sales. The discounts on GPUs also validate that theory. And AMD constantly lowering the price of this and that CPU also point to problems in that market.

9% drop in smart phones is interesting too. Apple has to be a big part of that, but I don't know the percentage. I've seen they are offering "tax-free" purchases in some states, so that might indicate some weakness there.

I wonder if their excuse for Arizona is really an excuse, or a reflection of their deteriorating situation. If so, it may indicate they don't see a return to significant growth soon. But, they could easily be telling the truth, too.

These earnings really ask more questions than they answer, and they answer a lot.
 
C. C. Wei

Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand and inventory. We concluded our second quarter with revenue of USD 15.7 billion in line with our guidance in U.S. dollar terms. Our business in the second quarter was impacted by the overall global economic conditions, which dampened the end market demand and customers' ongoing inventory adjustment.

Moving into third quarter 2023. While we have recently observed an increase in AI-related demand, it is not enough to offset the overall cyclicality of our business. We expect our business in the third quarter to be supported by the strong ramp of our 3-nanometer technologies, partially offset by customers continued inventory adjustment.

In the last quarterly conference, we said we expect fabless semiconductor inventory to rebalance to a healthier level exiting the third quarter. This statement continue to hold true. However, due to persistent weaker overall mega economic conditions slower-than-expected demand recovery in China and overall softer end market demand conditions, customers are more cautious and intend to further control their inventory into 4Q '23.

Thus while we maintain our forecast for the 2023 semiconductor market, excluding memory, to decline mid-single digit year-over-year, we now expect the foundry industry to decline mid-teens and our full year 2023 revenue to decline around 10% in U.S. dollar term. With such inventory control, we also forecast the fabless semiconductor inventory to exit 4Q '23 at a healthier and lower level as compared to our expectation 3 months ago.

Next, let me talk about the HPC and TSMC's long-term growth outlook. As we have said before, the massive structural increase in demand for computation underpinned by the industry megatrend of 5G and HPC continues to drive greater need for performance and energy-efficient computing, which require use of leading-edge technologies. These megatrends are expected to fill TSMC's long-term growth. Even with a more challenging 2023, our revenue remains well on track to grow between 15 and 20 CAGR over the next several years in U.S. dollar terms, which is a target we communicated back in January 2022 Investor Conference.

The recent increase in AI-related demand is directionally positive for TSMC. Generative AI requires higher computing power and interconnect bandwidth, which drive increasing semiconductor content. With using CPUs, GPUs or AI accelerator and related ASIC for AI and machine learning, the commonality is that it requires use of leading-edge technology and a strong foundry design ecosystem. These are all TSMC's strengths.

Today, server AI processor demand, which we define as CPUs, GPUs and AI accelerators that are performing training and influence [ph] functions accounts for approximately 6% of TSMC's total revenue. We forecasted this to grow at close to 50% CAGR in the next 5 years and increase to low teens percent of our revenue.

The sensible need for energy-efficient computation is starting from data centers, and we expect [indiscernible] proliferate to edge and devices of time, which will further long term, which will drive further long-term opportunities. We have already embedded a certain assumption for AI demand into our long-term CapEx and growth forecast.

Our HPC platform is expected to be the main engine and the largest incremental contributor to TSMC's long-term growth in the next several years. While the quantification of the total addressable opportunity is still ongoing, generative AI and large language model only reinforce the already strong conviction we have in the structural mega trend to drive TSMC's long-term growth, and we will closely monitor the development for further potential upside.

Now let me talk about our N3 and N3E status. Our 3-nanometer technology is the most advanced semiconductor technology in both PPA and transistor technology. N3 is already involved in production with good yield. We are seeing robust demand for N3 and we expect a strong ramp of N3 in the second half of this year, supported by both HPC and smartphone applications.

N3 is expected to continue to contribute mid-single-digit percentage of our total wafer revenue in 2023. N3E further extend our N3 family with enhanced performance, power and yield and provide complete platform support for both HPC and smartphone applications. N3E has passed the qualification and achieved performance and yield target and will start volume production in the fourth quarter of this year.

With our continuous enhancement of 3-nanometer process technologies, we expect strong multi-yield demand from our customers and are confident that our 3-nanometer family will be another large and long-lasting node for TSMC.

Finally, I'll talk about our N2 status. Our N2 technology development is progressing well and on track for volume production in 2025. Our N2 top nanosheet transistor structure to provide our customer with the best performance, cost and technology maturity. Our nanosheet technology has demonstrated excellent power efficiency and our N2 watt delivered full node performance and power benefits to address the increasing need for energy-efficient computing.

As part of N2-technology platform, we also developed N2 with backside power rail solution, which is best suited for HPC applications. Backside power rail will provide 10% to 12% additional speed gain and 10% to 15% large density boost on top of the baseline technology. We are targeting backside power rail to be available in the second half of 2025 to customers with production in 2026.

We are observing a high level of customer interest and engagement at N2 from both HPC and smartphone applications. Our 2-nanometer technology will be the most advanced semiconductor technology in the industry in both density and energy efficiency when it is introduced and to further extend our technology leadership right into the future.
 
Mark Liu

Thank you, C. C. And good afternoon, everyone. Today, I want to talk about TSMC's global manufacturing footprint, status update. TSMC's mission is to be the trusted technology and capacity provider of the global logic IC industry for years to come. Our strategy is to expand our global manufacturing footprint to increase customer trust and to expand our future growth potential and to reach for more global talents.

Our overseas decisions are based on our customers' needs and the necessary level of government support. That is to maximize the value of our shareholders and to fulfill our fiduciary duty. In Arizona, we are building our first fab to provide U.S. most advanced semiconductor technology in mass production to support the needs for U.S. semiconductor infrastructure. Our fab in Arizona started construction in April, 2021 with an aggressive schedule. We are now entering a critical phase of handling and installing the most advanced and dedicated equipment.

However, we are encountering certain challenges, as there is an insufficient amount of skill workers with those specialized expertise required for equipment installation in a semiconductor grade facility. While we are working on to improve the situation, including sending experienced technicians from Taiwan to train the local skill workers for a short period of time. We expect the production schedule of N4 process technology to be pushed out to 2025.

In Japan, we are building a specialty technology factory, which will utilize 12, 16 and 22, 28 process technologies. Volume production is on track for late 2024. In Europe, we are engaging with customers and partners to evaluate building a specialty fab in Germany, focusing on automotive specific technologies based on the demand from our customers and the level of government support.

In China, we are expanding 28-nanometer in Nanjing as we planned to support our customer in China, and we continue to follow all rules and regulations fully. At the same time, we continue to invest in Taiwan and to expand our capacity to support our customers' growth.

From a cost perspective, the initial cost of overseas fab are higher than TSMC's fabs in Taiwan due to: one, the smaller fab scale; two, higher costs throughout the supply chain; and three, the early stage of semiconductor ecosystem on those overseas sites, as compared to a matured ecosystem in Taiwan.

In our recent meetings with senior government officials in the U.S., Japan and Europe, we discussed our plans to expand our global manufacturing footprint to them. We also emphasize one of our major responsibility is to manage and minimize the cost gap to maximize return for our shareholders. Those discussions went very well. All sites understand the critical and integral role TSMC plays in the semiconductor industry, and we appreciate all the government's ongoing support in working with TSMC to help narrow down the cost gap. We will continue to work closely with all the governments to secure the further support.

Our pricing will also remain strategic to reflect our value, which includes the value of geographic flexibility. At the same time, we will leverage our fundamental competitive advantage of manufacturing technology leadership, large volume and economies of scale to continuously drive our cost down.

By taking such actions, TSMC will have the ability to absorb the higher cost of overseas fab, while remaining the most efficient and cost-effective manufacturer no matter where we operate. Thus, even as we expand our capacity overseas, TSMC's long-term gross margin of 53% and higher and sustainable ROE of greater than 25% is achievable, and we will continue to maximize the value for our shareholders.
 
From a cost perspective, the initial cost of overseas fab are higher than TSMC's fabs in Taiwan due to: one, the smaller fab scale; two, higher costs throughout the supply chain; and three, the early stage of semiconductor ecosystem on those overseas sites, as compared to a matured ecosystem in Taiwan.
Click to expand...
The most cogent cost-related comment I've seen from TSMC so far...
 
I'm kind of surprised N3 revenue was not yet being collected. If we assume that N3 iPhones are indeed coming this year, then the wafers are certainly already reaching EOL. Maybe Apple was able to defer payment until after they started collecting revenue (in which case well played Apple's legal team). I suppose it could also be the case that because the bulk of the wafers for the launch have not come off the line yet, that the revenue is small enough not to show up (yet).

blueone said:
The most cogent cost-related comment I've seen from TSMC so far...
Click to expand...
I can only hope this latest piece of evidence means we never see any more comments about "the cost of labor makes fabs outside of Taiwan un-viable" (while simultaneously pretending that the even lower cost locals with major footprint don't exist).
 
nghanayem said:
I'm kind of surprised N3 revenue was not yet being collected. If we assume that N3 iPhones are indeed coming this year, then the wafers are certainly already reaching EOL. Maybe Apple was able to defer payment until after they started collecting revenue (in which case well played Apple's legal team). I suppose it could also be the case that because the bulk of the wafers for the launch have not come off the line yet, that the revenue is small enough not to show up (yet).


I can only hope this latest piece of evidence means we never see any more comments about "the cost of labor makes fabs outside of Taiwan un-viable" (while simultaneously pretending that the even lower cost locals with major footprint don't exist).
Click to expand...

I was wondering the same thing about N3, but maybe it's currently being put under the "other" category, until it gets bigger.
 
Dan. I am trying to understand the 3nm lack of revenue report. if its going to be single digits percent for the year, and its ~zero for 1H, then there is a large increase next two quarters which is a typical Apple effect (revenue spike for iphone suppliers) . so there is no 4nm 3nm revenue right now?
 
MKWVentures said:
Dan. I am trying to understand the 3nm lack of revenue report. if its going to be single digits percent for the year, and its ~zero for 1H, then there is a large increase next two quarters which is a typical Apple effect (revenue spike for iphone suppliers) . so there is no 4nm 3nm revenue right now?
Click to expand...

TSMC reports N4 and N5 as 5nm in their presentation materials. Same with N7 and N6 reported as 7nm.

The Apple A14 which is the first N5 SoC was launched in September of 2020. If you look at TSMC presentation materials N5 revenue starts in Q3 2020 (8% of revenue) and ramps up in Q4 2020 (20%). I would expect the same for N3.
 
nghanayem said:
I'm kind of surprised N3 revenue was not yet being collected. If we assume that N3 iPhones are indeed coming this year, then the wafers are certainly already reaching EOL. Maybe Apple was able to defer payment until after they started collecting revenue (in which case well played Apple's legal team). I suppose it could also be the case that because the bulk of the wafers for the launch have not come off the line yet, that the revenue is small enough not to show up (yet).
Click to expand...
It seems likely that accounting rules may come into play here; payment may be collected but not recorded as revenue until there are actually goods sold.

Last year I poked around a bit in TSMC's 2022Q2 Consolidated Financial Statements and found this:

1689920239634.png

The Consolidated Financial Statements aren't released until the auditors are done with it, which takes a few months weeks, but the one for 2023Q1 is up:


1689920406466.png


Amounts are in thousands of New Taiwan dollars, so we're looking at nearly US$9 billion sitting in this "temporary receipts" bucket the last two quarters.

2023Q2's Consolidated Financial Statements should be published in early August.
 
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Interesting comment from TSMC regarding using some N5 tools for N3. They still expect that N3 will dilute about 3 to 4 percentage points of next year's gross margin.
 

Here are Musk's 12 best quotes from Q2 2023 Tesla Earnings Call​

1. "Demand is so far off the hook you can't even see the hook." (Musk was discussing Tesla's upcoming Cybertruck.)
2. "I don't have a crystal ball for the global economy. I'd really appreciate it if I could borrow that crystal ball. One day, it seems like the world economy is falling apart. And the next day, everything is fine. I don't know what the hell is going on, to be totally frank. I wish I did."
3. "For a lot of people, they're barely breaking even every month. In fact, if you look at the rise in credit-card debt, they're not breaking even every month. Credit-card debt is freaking scary."
4. "I really see a path to a 5x increase in the value of the company, maybe a 10x. But where things go along the way, the trials and tribulations and the mood of the markets, one cannot predict. So the old adage of buy and hold is right."
5. "I care a lot about the small shareholders, especially ones that have stuck with us through thick and thin. I love you guys. We can't control these macro shocks or the the manic-depressive nature of the stock market. So that's why I recommend against margin loans in times that are turbulent."
6. "Warren Buffett has a saying: Imagine you're living in your house and some crazy, manic-depressive guy comes and stands outside your house and yells property prices at you, and it's a different price every day, but the house is still the same house. So this is a tough market." (Musk was speaking about stock-market volatility.)
7. "Provided you're confident in a company's products or services, when the market panics, buy. And when the market is overly exuberant, you can sell. I'm not recommending you sell, but buy low, sell high."
8. "You see a lot of AI companies doing large language models (LLMs) and whatnot. And I'd say, 'If they're so great, why can't they make a self-driving car?' Because it's harder. That's why."
9. "We're using a lot of Nvidia hardware. We'll actually take it as fast as they'll deliver it to us. Frankly, if they could deliver us enough GPUs, we might not need Dojo. But they can't. They've got so many customers."
10. "By combining a Neuralink implant and a robotic arm or leg, we believe we can give amputees basically a cyborg body that is incredibly capable. The $6 million man in real life. But it won't cost $6 million — a $60,000 man."
11. "It's a game of pennies. It's like 'Game of Thrones' but pennies." (He was speaking about Tesla's cost-cutting efforts.)
12. "Now I know I'm the boy who cried FSD, but man, I think we'll be better than human by the end of this year. That's not to say we're approved by regulators, and that would be in the US because we've got to focus on one market first. I've been wrong in the past, I may be wrong this time." (Musk was discussing Tesla's efforts to perfect a full self-driving mode for its vehicles.)

markets.businessinsider.com

Elon Musk touched on Nvidia, Cybertruck, Warren Buffett, and the dangers of debt on Tesla's latest earnings call. Here's his 12 best quotes.

Tesla CEO Elon Musk said he loves his loyal fanbase of retail investors, and warned that American consumers are falling behind on their monthly bills.
markets.businessinsider.com markets.businessinsider.com
 
Fred Chen said:
Interesting comment from TSMC regarding using some N5 tools for N3. They still expect that N3 will dilute about 3 to 4 percentage points of next year's gross margin.
Click to expand...

New nodes generally do that, correct? Especially one as big as N3, which will be the biggest node in the TSMC FinFET family.
 
Daniel Nenni said:

Here are Musk's 12 best quotes from Q2 2023 Tesla Earnings Call​

1. "Demand is so far off the hook you can't even see the hook." (Musk was discussing Tesla's upcoming Cybertruck.)
2. "I don't have a crystal ball for the global economy. I'd really appreciate it if I could borrow that crystal ball. One day, it seems like the world economy is falling apart. And the next day, everything is fine. I don't know what the hell is going on, to be totally frank. I wish I did."
3. "For a lot of people, they're barely breaking even every month. In fact, if you look at the rise in credit-card debt, they're not breaking even every month. Credit-card debt is freaking scary."
4. "I really see a path to a 5x increase in the value of the company, maybe a 10x. But where things go along the way, the trials and tribulations and the mood of the markets, one cannot predict. So the old adage of buy and hold is right."
5. "I care a lot about the small shareholders, especially ones that have stuck with us through thick and thin. I love you guys. We can't control these macro shocks or the the manic-depressive nature of the stock market. So that's why I recommend against margin loans in times that are turbulent."
6. "Warren Buffett has a saying: Imagine you're living in your house and some crazy, manic-depressive guy comes and stands outside your house and yells property prices at you, and it's a different price every day, but the house is still the same house. So this is a tough market." (Musk was speaking about stock-market volatility.)
7. "Provided you're confident in a company's products or services, when the market panics, buy. And when the market is overly exuberant, you can sell. I'm not recommending you sell, but buy low, sell high."
8. "You see a lot of AI companies doing large language models (LLMs) and whatnot. And I'd say, 'If they're so great, why can't they make a self-driving car?' Because it's harder. That's why."
9. "We're using a lot of Nvidia hardware. We'll actually take it as fast as they'll deliver it to us. Frankly, if they could deliver us enough GPUs, we might not need Dojo. But they can't. They've got so many customers."
10. "By combining a Neuralink implant and a robotic arm or leg, we believe we can give amputees basically a cyborg body that is incredibly capable. The $6 million man in real life. But it won't cost $6 million — a $60,000 man."
11. "It's a game of pennies. It's like 'Game of Thrones' but pennies." (He was speaking about Tesla's cost-cutting efforts.)
12. "Now I know I'm the boy who cried FSD, but man, I think we'll be better than human by the end of this year. That's not to say we're approved by regulators, and that would be in the US because we've got to focus on one market first. I've been wrong in the past, I may be wrong this time." (Musk was discussing Tesla's efforts to perfect a full self-driving mode for its vehicles.)

markets.businessinsider.com

Elon Musk touched on Nvidia, Cybertruck, Warren Buffett, and the dangers of debt on Tesla's latest earnings call. Here's his 12 best quotes.

Tesla CEO Elon Musk said he loves his loyal fanbase of retail investors, and warned that American consumers are falling behind on their monthly bills.
markets.businessinsider.com markets.businessinsider.com
Click to expand...

This is hilarious. its like a SNL skit making fun of Elon Musk. Are you sure this isnt from the Onion LOL???
 
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