Taiwan Semiconductor Manufacturing Company (TSMC) exceeded revenue and profit expectations in the first quarter of this year, thanks to the strong demand for advanced chips, especially those used in AI applications. The net revenue reported was 592.64 billion New Taiwan dollars ($18.87 billion), surpassing the expected NT$582.94 billion. Moreover, the net income was NT$225.49 billion, higher than the anticipated NT$213.59 billion.
Industry Trends Driving Performance
TSMC, being the world’s largest producer of advanced processors with clients like Nvidia and Apple, is well-positioned for strong performance based on key industry trends. The sustained demand for advanced chips, particularly those utilized in AI applications, indicates a positive outlook for the company in both the short and long term. Additionally, the ongoing focus on advanced chip development, such as the transition towards 3nm technology, contributes to the long-term growth of TSMC.
Technological Advancements
TSMC is currently manufacturing 3-nanometer chips and is planning to begin mass production of 2-nanometer chips by 2025. It is known that a smaller nanometer size results in more potent and efficient chips. The surge in demand for AI chips, fueled by the proliferation of large language models like ChatGPT and Chinese clones, has led to a 56% increase in TSMC’s shares over the past year. Their strong presence is further evident as they accounted for 61% of global foundry revenue in the fourth quarter, with Samsung Foundry coming in second at 14%.
TSMC’s net profit margin remains remarkably high at 40%, surpassing the industry average of 14%. This demonstrates the company’s robust competitive position in the market. The high margin can be attributed to the increased sales share of 7nm and smaller chips, which carry significantly higher margins. Analysts like Grzegorz Drozdz from Conotoxia have acknowledged TSMC’s impressive financial performance.
TSMC’s Arizona subsidiary received preliminary approval for government funding of up to $6.6 billion from the U.S. to develop the world’s most advanced semiconductors. Additionally, they are eligible for approximately $5 billion in proposed loans, highlighting the government’s recognition of TSMC’s significant contribution to the semiconductor industry. Despite facing challenges like Taiwan’s recent strong earthquake, TSMC managed to maintain normalcy at its construction sites and resume operations promptly.
Taiwan Semiconductor Manufacturing Company’s exceptional performance in the first quarter of this year underscores its stronghold in the advanced chip manufacturing sector. The company’s strategic focus on technological advancements, strong demand for AI chips, high profit margins, and resilience in the face of adversities position TSMC as a key player in the semiconductor industry.