TSMC held a Q2 2024 press conference yesterday and announced its Q3 outlook. According to CFO Huang, benefiting from the strong market demand for 3nm and 5nm, TSMC's Q3 revenue is expected to be around US$22.4 billion to US$23.2 billion (NT$72.8 billion to NT$75.4 billion), representing a quarterly increase of 9.5% at the median, which is similar to the market's expectation.

Highlights of TSMC's Q2 Financial Results

• Single-quarter revenue of about NT$100 million, QoQ +13.6%, YoY +40.1%
• Gross margin 2%, QoQ +0.1, YoY -0.9
• Business Interest Rate 5%, QoQ +0.5, YoY +0.5
• After-tax net income of approximately NT$4.5 billion, QoQ +9.9%, YoY +36.3%
• EPS (Earnings Per Share) : NT$56, QoQ +10%, YoY +36%

TSMC's 2Q24 EPS of NT$9.6 outperformed market expectations by 4%, mainly due to 3nm and HPC revenues remaining strong, while artificial intelligence applications have pushed up demand for advanced chips, with high-performance computing (HPC) increasing by 28% quarterly.

2024Q2 Process Revenue Share

Shipments of 3nm process accounted for 15%, 5nm for 35%, and 7nm for 17% of the overall sales, while advanced processes (7nm and above) accounted for 67%.

TSMC 2024 Q2 Revenue Share

Source : TSMC

Full-year outlook revised upwards

TSMC expects Q3 USD revenue to fall between $22.4B and $23.2B, or roughly NT$728B and NT$754B; gross margin to fall between 53.5 and 55.5%, and operating profit margin between 42.5 and 44.5%. In addition, TSMC raised its full-year revenue outlook and expects to see growth between 24% and 26% this year, reflecting confidence in the enduring global AI boom. TSMC also raised its full-year revenue outlook, projecting growth between 24% and 26%, reflecting its confidence in the global artificial intelligence boom. Meanwhile, Apple's upcoming launch of iPhone 16 also provides optimistic outlook. This year's capital expenditures are estimated to be between US$30 billion and US$32 billion, with the low end of the range slightly higher than the original US$28 billion. TSMC CFO Jen-Chiu Huang explained that 70 to 80% of the total will be used for advanced process technologies, 10 to 20% for special processes, and 10% for other projects such as advanced packaging, testing, and production.

CoWosHigh energy demand

In a press conference, TSMC said that production capacity for CoWoS, an advanced packaging technology, will be tight until next year. CoWoS is an advanced package that connects graphics processors, CPUs and high-bandwidth memory (HBM) chips together. Capacity has more than doubled from last year to this year, and will likely double again next year.

Ji-Pu's point of view.

1. TSMC slightly raised the low end of its capex target, adjusting its original early year capex ($28-$32 billion) to $30-$32 billion; the adjustment was made primarily to support customer demand, which also indicates continued order growth as structural AI-related demand is strong.
2. In the press conference, TSMC stated that the company's gross margin will remain above 53%, and Mr. Wei-Chee-Chia particularly focused on the "above"; regarding the possible increase in gross margin, it means that the products are gradually moving to advanced processes, and the high demand for N3 and N5 orders may increase the foundry price, and it is estimated that the gross margin will possibly grow to 56%. N2 process technology will be mass-produced in 2025 as scheduled, and its production curve is expected to be similar to that of N3. The N2P process technology will support smartphone and HPC applications and is scheduled for mass production in the second half of 2026, with a performance increase of 5% compared to N2. TSMC's next-generation nanochip technology, the A16 process, will utilize the SPR (Super Power Rail) solution to retain the flexibility of gate density and component width, while improving performance.
3. Wei Zhejia said, artificial intelligence AI chip demand continues to be strong, it is estimated that this year and tomorrow (2025) CoWoS capacity have the opportunity to multiply, and may not have the opportunity to slow down until 2025, and in 2026 to reach a balance between supply and demand. In addition, TSMC has redefined the scope of foundry in the law (Foundry 0) and will focus on packaging, testing, photomasks, etc. (excluding memory). It also includes packaging, testing, masks, etc. (excluding memory) in the scope of the Foundry for advanced manufacturing processes. The new definition will not only allow the overall foundry market to increase in value and growth, but also reduce the risk of TSMC's anti-monopolization; in view of the current tight capacity situation, TSMC will continue to increase its capacity, and will not even rule out mergers and acquisitions and other strategic tactics. The new definition of Foundry 2.0 will enable TSMC to reduce antitrust scrutiny when it needs to acquire packaging and testing-related capacity and technology in the future.
4. With the continued growth of AI Server gas pedal (massive orders from Phaidon), all brokers upgraded TSMC's EPS for the whole year to stand at $40 in 2024 and continue to challenge $41 and $42; in line with Ji-Pu's forecast for TSMC at the end of last year.
5. With the introduction of AI terminal device (Edge device), the bare crystal size (Die Size) increased by 5~10%, at the same time, Wei Zhejia is also optimistic about AI to stimulate the replacement of the wave of smart phones and PCs; terminal products will continue to recover, but the explosive growth has not yet begun.

It is believed that TSMC's future N2, N2P, A16 and other derivative technologies will further extend its technology leadership and allow TSMC to capitalize on future growth opportunities.