TSMC Earnings Review: At the Bottom of the Semiconductor Cycle

TSMC released its financial report for the first quarter of 2023 (as of March 2023). The main points are as follows:

1. On the income side: Both volume and price have fallen, and it is difficult to escape the vicious cycle. In the first quarter of 2023, TSMC. US revenue will reach US$16.72 billion, which is at the lower end of the performance guidance range (US$16.7-17.5 billion). Quarterly revenue has experienced a quarter-on-quarter decline, of which the dimension of shipments has an impact of -12.8%, and the dimension of average shipment price has an impact of -3.8%. The decline in price is mainly due to the drag of the industry cycle decline, while the decline in shipments is mainly caused by the adjustment of customer orders;

The decline in TSMC’s revenue in this quarter mainly came from North America, because American customers adjusted their orders under inventory pressure, which directly affected TSMC’s current performance;

2. Gross profit and gross profit margin: the heights are overwhelming. In the first quarter of 2023, TSMC's gross profit margin was 56.3%. Although it exceeded the upper limit of the guidance range (53.5-55.5%), there was a quarter-on-quarter decline of nearly 6pct. Previously, in the semiconductor boom cycle, TSMC’s gross profit margin frequently rose and exceeded 60%, which was unsustainable. Under the influence of falling prices and rising costs, the company's gross profit margin has also fallen from a high level.

3. High-performance computing (HPC) has become the first pillar, and 3nm is still difficult to produce. With the continued weakness of smartphones, the share of HPC has reached 44%, becoming the new core of the company's business. With the recovery of demand for graphics cards and data centers, the proportion of HPC business is expected to continue to increase. On the process node, 3nm has not yet achieved mass production, which has suppressed the increase in the average price of the company's products to a certain extent.

4. TSMC performance guidance: In the second quarter of 2023, the expected revenue is US$15.2-16 billion (market expectation is US$16.1 billion) and the gross profit margin is 52-54% (market expectation is 52.57%). The income side was slightly lower than market expectations, and continued to decline by 4%-9% month-on-month, mainly because orders were still picking up, and the price side was also under pressure. Although the gross profit margin was in line with market expectations, it continued to decline from this quarter, mainly due to the decline in the average price of the company's products and the reduction in capacity utilization.