Semiconductor industry insiders said that many major manufacturers, including Nvidia, AMD, and MediaTek, are “willing to accept” this increase. Due to stronger-than-expected demand, Nvidia has previously placed a large order with TSMC to “expedite” the production of a full range of AI GPUs.

According to reports, as destocking comes to an end and major customers return one after another, TSMC’s operations next year are expected to resume “healthy growth” in the second quarter at the latest. The increase in foundry quotations is expected to help it offset the high costs of building and operating overseas factories. , allowing TSMC to maintain its long-term gross profit margin target of 53%.

It was previously reported that Reuters said this week that TSMC’s third-quarter net profit is expected to decline 30% year-on-year, but analysts predict that the company will achieve strong growth next year as the chip industry is emerging from the current downturn. According to data released by TSMC, revenue in the third quarter was approximately US$17 billion, a year-on-year decrease of 20%, roughly in the middle of the company’s forecast range.

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Likewise, holding Apple, Nvidia, AMD and many other manufacturers orders of the foundry TSMC has also been affected, their revenue in the first quarter on a significant decline in the chain, is expected to decline in the second quarter year-on-year chain will continue to decline.

TSMC’s revenue decline also means that their capacity utilization rate has declined. At the end of last year, it was also reported that TSMC’s capacity utilization was expected to drop to 80% in the first half of this year, with capacity utilization declining for both 5nm and 7nm, the two largest revenue generators. Earlier this year, it was reported that TSMC’s 5/4nm process capacity utilization may drop to below 70%.

However, according to the latest media reports, TSMC’s capacity utilization for 7nm and below advanced processes has started to rebound slowly since June.

Although the media reports did not explicitly mention the reasons for the rebound in TSMC’s 7nm and below capacity utilization, it is expected to be related to the increased demand for artificial intelligence chips driven by ChatGPT, and there have also been reports that major supplier Nvidia has increased its orders from TSMC in recent times.

In addition, media reports have also mentioned that TSMC is preparing for a new wave of chip demand growth in 2024 as major customers restart or expand their orders.

The rebound in capacity utilization and the restart or increase in orders from major customers means that TSMC’s revenue will rebound in the coming period.

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TSMC does not comment on rumors about dynamics related to capacity utilization. According to the data previously disclosed by TSMC, the 5nm and 7nm processes contributed about 50% of the performance in the first quarter of this year, which is the main source of revenue. There is quite positive help.

Industry insiders pointed out that TSMC’s 5nm process has a monthly production capacity of about 130,000 pieces. Previously, the capacity utilization rate was estimated to have dropped to more than 50%, and it has recently begun to heat up. The current monthly production is estimated to be about 90,000 to 100,000 pieces. Converting production capacity utilization The rate has risen to about 70% to 80%, which is faster than the original market expectation, mainly due to the fact that NVIDIA, a major customer, has placed additional orders with TSMC in response to market demand, and the related production should be gradually released from July.

In terms of 7nm process, TSMC’s related capacity utilization rate is not as good as 5nm. The supply chain believes that TSMC’s capacity utilization rate in the first few months before 7nm may be reduced to only 30% to 40%, but it has returned to about 50% level.

In addition, in terms of TSMC’s most advanced 3nm process, industry insiders mentioned that the most important customer is still Apple, which mainly produces the latest A-series processors equipped in the upcoming high-end iPhone 15 new machine. Filming will follow.

TSMC previously stated that because the client’s demand for its 3nm process exceeds its supply capacity, it is expected that the 3nm process will be fully loaded this year and will contribute a large amount of revenue from the third quarter. The N3E process will be mass-produced in the second half of the year.

It is noticed that Liu Deyin, chairman of TSMC, said a few days ago that due to the adjustment period of industrial inventory this year, the company’s performance may show a little negative growth, but the prospects are still very bright, and it is ready for the next wave of good growth next year.

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TSMC president Wei Zhejia previously said at a legal conference, TSMC 7 nanometer process capacity utilization in the fourth quarter of the loose, resulting in the Kaohsiung 7 nanometer plant construction time temporarily delayed, but did not cancel or change the plan, while the 28 nanometer plant is still on schedule as expected.

According to the introduction, TSMC’s Kaohsiung plant is located in Nanzhi Industrial Park, the former site of CNPC Kaohsiung Refinery, and the Kaohsiung Municipal Government expects to combine with Qiaotou Science Park, Luke and Nanke to create a semiconductor industrial colony, which is expected to be in mass production in 2024.

TSMC’s cumulative revenue from January to October 2022 was approximately NT$1.85 trillion (approximately RMB 421.8 billion), an increase of 44.0% from the same period last year.

In the third quarter of this year, TSMC reported revenue of US$20.23 billion (approximately RMB145.049 billion), a gross margin of 60.4%, and net operating margin of 50.6%. During the reporting period, TSMC’s 5nm shipments accounted for 28% of total wafer revenue; 7nm shipments accounted for 26%; and 7nm and more advanced processes accounted for 54% of total wafer revenue.

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Wei said in the October meeting that the Kaohsiung plant was originally planned to be a 2-block plant, and the 7nm part will be slightly adjusted, while the 28nm part will proceed according to the schedule.

At the same time, there is news that the 7nm capacity utilization rate of the Taichung Fab 15B factory is lower than expected and has dropped to below 50%, while the low-profile Fab 12 (P8) factory in Chuke is not known, and the 7nm plan of Kaohsiung Fab 22 factory is on hold, depending on the future demand for each process capacity and the construction of new factories, which has caused concern in the industry.

In this regard, TSMC President Wei Zhejia said, the TSMC Kaohsiung plant 7nm plan is only temporarily delayed, and will not change the process.

Wei Zhejia earlier in the law meeting first explained that the Kaohsiung plant plan will be slightly adjusted, priority cut into the 28-nanometer process, as the original 7-nanometer plan, by 7 nanometers and 6-nanometer capacity utilization rate fell sharply decided to postpone, Wei Zhejia today confirmed TSMC’s latest planning, postponed 7-nanometer capacity construction.

TSMC’s cumulative revenue from January to October 2022 was approximately NT$ 1.85 trillion (approximately RMB 421.8 billion), an increase of 44.0% from the same period last year.

In the third quarter of this year, TSMC reported revenue of US$20.23 billion (approximately RMB 145.049 billion), a gross margin of 60.4%, and a net operating margin of 50.6%. During the reporting period, TSMC’s 5nm shipments accounted for 28% of total wafer revenue; 7nm shipments accounted for 26%; and 7nm and more advanced processes accounted for 54% of total wafer revenue.

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According to industry insiders, the 7nm capacity utilization rate of Taichung Fab 15B factory is lower than expected, and it has dropped to below 50%. It is expected that the decline will be further intensified in 2023Q1. The 7nm plan of the Fab 22 plant will be shelved indefinitely. In the future, it will be re-planned depending on the capacity needs of each process and the construction of new plants.

It is said that a series of adjustments such as vigorously cutting orders and delaying shipments have a greater impact. Although TSMC has many 7nm customers, the most influential ones are MediaTek, AMD, Qualcomm, as well as Apple, New Zealand, which have orders transferred to 5/4nm. The single is far inferior to the expected Intel, as well as the restricted Ziguang Zhanrui, Bitmain and Alibaba Pingtou.

Although it was full of confidence at last month’s legal meeting, TSMC also expected for the first time that the production capacity utilization rate of the 7/6nm process family will decline, and will return to the previous level in the first half of 2023. At the same time, TSMC will also adjust the Kaohsiung Fab 22. Factory 7nm plant construction plan.

Qualcomm and MediaTek have previously warned that the inventory of smartphones is serious. According to foundries, MediaTek is also one of the largest companies in this wave of slashing orders.

Due to weak market conditions, Intel’s PC, server and other product shipments were not as expected, which also forced Intel to reduce TSMC’s orders, including 6nm orders for Intel Arc A-series GPUs, and 7nm orders for Xe-HPC architecture Ponte Vecchio.

In addition, the shipment of new products is also not as expected. Almost all the top ten customers have adjusted, including NVIDIA’s use of 7nm A100 chips and 4nm H100 chips, and the largest number of RTX 40 series orders have also been fully revised or delayed. , and Intel’s 4nm and the most important 3nm process orders have also undergone significant adjustments.

However, TSMC’s orders below 5nm are still quite hot. In addition to the new orders of 5nm AMD Zen 4 architecture Genoa and RDNA 3 architecture GPU, Qualcomm Snapdragon 8 Gen 2 will also use 4nm process.

It is worth mentioning that TSMC also has a large order for Apple’s new Mac series with an annual shipment of nearly 20 million units from 2023, plus Apple’s normal orders for iPhones and iPads. Semiconductor equipment manufacturers said that they will expand TSMC’s orders after the global IC design customers have completed destocking, including Broadcom, Marvell, MediaTek and other major manufacturers.

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TSMC’s 7/6nm node is its largest revenue component through the third quarter of 2022, contributing nearly 30% of revenue in the first three quarters of 2022. in total, TSMC has 145-150 KWPM (thousand wafers per month) of installed capacity on 7/6nm in the first half of 2022 but will adjust production plans for some equipment tools in the second half of 2022, in part taking into account the deterioration of smartphone and PC market demand.
According to Counterpoint analysis, high-performance computing-related products (including PC and server CPUs, discrete GPUs, data center gas pedals and ASIC/FPGA) account for 38% of TSMC’s 7/6nm products in 2022, followed by smartphone-related (mainly AP/SoC) chipsets at 32%. MediaTek, AMD and Qualcomm are likely to be the top three customers in this category.

Reviewing the inventory levels of smartphone AP/SoC as the main application of the advanced foundry node (10nm and below), Counterpoint believes that in the case of weakening end market (sales) data, from the second half of 2022, chip suppliers will face greater pressure on order corrections. Chip production cycles for advanced nodes are more than four months long, resulting in a lag effect of reduced wafer production for smartphone AP/SoC, CPU/GPU and AI processors starting as early as the fourth quarter of 2022.

However, Counterpoint agrees with TSMC that the 7/6nm node will see positive drivers for new product migration, such as Wi-Fi, RF and SSD controller ICs, after the 2023 inventory cycle.

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