TSMC's forecast supports hopes for a global technology recovery in 2024

(Bloomberg) — Taiwan Semiconductor Manufacturing Co. expects a return to strong growth this quarter and has given itself room to increase capital spending in 2024, suggesting the world's most valuable chipmaker expects demand for smartphones and computing to rebound.

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Major chip maker Apple Inc. Nvidia Corp. has a capital spending budget of $28 billion to $32 billion — versus about $30 billion in 2023 — and expects revenue growth to rebound to at least 20% for this year. It is pressing ahead with plans to set up chipmaking factories in Japan, Arizona and Germany – the first of which will begin mass production at the end of 2024 in a major boost to TSMC's global footprint.

The Taiwanese company's forecast, although it does not exceed the most optimistic estimates, comes after years of decline in demand for the technology. Executives also spent a significant portion of time talking about potential catalysts from a boom in AI development around the world, which requires powerful chips that TSMC excels at manufacturing.

CEO CC Wei, who is set to take over the chairmanship from Mark Liu this year, stressed that he expects a return to “healthy growth.” Shares of TSMC supplier ASML Holding NV rose more than 2%, sending other European chip equipment stocks higher.

“Our business has bottomed out year-on-year, and we expect 2024 to be a healthy growth year for TSMC,” Wei said.

Read more: Global chip sales return to growth in sign of improving demand

Signs of recovery have appeared in the chip industry in recent weeks. The Semiconductor Industry Association estimated chip sales rose in November after more than a year of decline. TSMC expects revenue to grow at least 8% to $18 billion to $18.8 billion in the March quarter, versus expectations of about $18.2 billion.

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What does Bloomberg Intelligence say?

TSMC could lead global chip foundries through industry headwinds in 2023-24 thanks to growing demand for AI chips and a move to next-generation processing nodes such as N3 in 2H23 and N2 by 2025. Although the smartphone and PC chip market does not… Still stagnant, however, TSMC's advanced packaging technology, both 2.5D and 3D, is strengthening its position in the contract chip manufacturing market, allowing for a potential return to 53% gross margin after a brief two-hour decline.

—Charles Shum, analyst

Click here for the full research.

Unlike previous calls, the conversation this time was largely dominated by Wei, who upon Liu's retirement will become one of the industry's most influential executives. Wei, who has long embraced a lower profile, has argued that TSMC will become a linchpin in the AI ​​development boom, much as it has helped fuel the smartphone industry alongside Apple.

Wei said TSMC's revenue should grow in the low-to-mid 20% range this year, reversing the slight decline in 2023. It reported a 19% decline in net income for the fourth quarter to NT$238.7 billion ($7.6 billion). , exceeding average analyst estimates. TSMC previously reported revenue of $625.5 billion, matching the previous holiday quarter and halting a string of declines.

But uncertainty remains. Over the course of 2023, TSMC eased its capital spending plans as the consumer electronics industry faced an abundance of unsold inventory.

This month, fellow chipmaker Samsung Electronics reported a decline in operating profit for the sixth straight quarter, weathering the impact of weak consumer demand in its smartphone and memory businesses.

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Questions also cast a pall over China, the world's largest market for computers, smartphones, the Internet and chips.

Read more: China's iPhone ban accelerates across government agencies and companies

Apple – which has long been one of TSMC's most important clients – has faced headwinds with the latest generation of iPhones. Several analysts downgraded Apple due to weak demand expectations, and Jefferies said the decline in iPhone sales in China was likely to worsen. The US company has also been hit by a growing ban on the use of foreign hardware between Chinese agencies and state-owned companies.

“We expect 2024 to be a healthy growth year for TSMC,” Wei said. “We are all well positioned to capture a significant portion of the market for AI semiconductor components.”

–With assistance from Gao Yuan, Cindy Wang, and Sam Kim.

(Updated with comments on US expansionism and artificial intelligence from second paragraph)

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