TSMC’s capital expenditure is not as good as last year

Latest update time：2024-01-15

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After four years of absence, semiconductor leader TSMC made its grand entrance on the 18th. The market consensus is that TSMC’s investment in mature processes has slowed down, but it is fully committed to cutting-edge technologies such as advanced processes and packaging. It is estimated that capital expenditures this year will be approximately US$30 billion, slightly less than 32 billion last year.

In addition, TSMC will re-elect directors and supervisors in 2024. Among the 10 directors, there are four directors and six independent directors. In addition to the retirement of chairman Liu Deyin, the other three independent directors will have different owners at the same time because their terms have expired for three terms. It is estimated that at least four directors and independent directors will have "new faces" this year.

Semiconductor Manufacturing Co., Ltd. is in a period of silence before the legal meeting, but many domestic and foreign legal entities are optimistic about the twin engines of inventory replenishment and AI demand. It is expected that revenue will regain growth momentum this year. In addition, the rapid expansion of the three-nanometer process is expected to support the whole year. Revenue reached the annual double-digit growth target.

According to legal analysis, TSMC will enter a harvest period in the next few years, and its investment scale is estimated to fall to US$30 billion this year, gradually converging from US$36 billion and US$32 billion in the previous two years. TSMC Chief Financial Officer Huang Renzhao previously emphasized that capital expenditure planning takes customer needs and growth into consideration in the next few years; after going through the past rapid growth stage, a bumper harvest will begin.

According to legal analysis, TSMC's capital expenditures have fluctuated around 50% of its revenue in the past three years. This move will affect the distribution of cash dividends. In the future, only when revenue continues to increase and expenditures decline will it be expected to continue to increase dividend distribution.

However, this does not mean that TSMC is slowing down its development of advanced processes or advanced packaging. The legal person believes that in the past, it has increased production capacity in stages to gradually meet customer needs. TSMC's research and development continues, and its pace of factory expansion has also maintained a positive attitude.

The supply chain revealed that last year, TSMC’s top five customers were Apple, AMD, Nvidia, MediaTek and Qualcomm. Starting from the second half of this year, they will all enter the three-nanometer era and establish the long-term mainstream process direction; TSMC has also simultaneously expanded its advanced process family, with three nanometers. Taking Nano as an example, N3P, N3AE, and N3E will be extended to correspond to different applications, which is more cost-effective for customers.

However, legal persons are worried that the biggest change in the future will be overseas factory expansion. Although the pace is fast, Wei Zhejia will bear the burden of success or failure of the investment in the US factory. It remains to be seen whether it is possible to change the steering wheel or adjust the timetable after the board of directors reorganization.

Foreign investment focuses on six major issues

TSMC announced on the 10th that its full-year revenue for 2023 would be NT$2,161.7 billion, a 4.5% decrease from the same period last year, which was better than expected and reached the second-highest performance in history. Management expects operations to return to healthy growth levels in 2024.

The market is worried about whether TSMC's advanced process technology can maintain its leading position in the future! Intel is expected to mass-produce the 18A process (equivalent to TSMC N3P) this year, and recently announced that it has become the buyer of ASML’s latest 2-nanometer High-NA EUV high numerical aperture exposure machine. This most advanced EUV costs more than US$300 million each. , ASML is expected to produce only 10 units this year, and Intel is rumored to have grabbed 6 units. Therefore, foreign investors are also concerned about whether TSMC can maintain its technological advantage below 2 nanometers.

Various foreign investors’ estimates of TSMC’s revenue and profits in 2024 are as follows:

1. Full-year revenue forecast for 2024

Goldman Sachs predicts that TSMC will lead the wafer foundry industry's annual revenue growth to a mid-single-digit percentage, and estimates that TSMC's full-year revenue in 2024 will increase by 22% annually. The growth will come from a large number of customer orders, increased AI demand, and 3 nanometer demand. and Intel’s outsourcing expansion. Among them, AI PCs and AI mobile phones will become the main keys to revenue growth.

UBS estimates that revenue will increase by 24% annually in 2024, exceeding the moderate recovery rate of the foundry industry, and in line with expectations for a compound growth rate of 15% to 20% from 2021 to 2026. Reasons for the increase include Intel CPU outsourcing, increased demand for artificial intelligence GPU/ASIC chips, and the expanded adoption of 3nm in mobile phones, tablets, and Macs.

JPMorgan Chase (commonly known as Morgan Stanley) believes that driven by strong demand for AI, 3 nanometers will expand its revenue contribution to 18% this year, and TSMC’s annual revenue will grow by 20%. In addition, 5nm has simultaneously benefited from the demand for AI accelerators and 5G mobile phones, with an annual growth rate of 4%.

Japanese Nomura Securities is more conservative and estimates that revenue in 2024 will increase by 15 to 20% annually. The increase is due to more customers upgrading to 3 nanometers.

2. Revenue estimates for the first quarter of 2024

Since the first quarter of each year is the off-season for the semiconductor industry and the fourth quarter is the peak season for smartphone shipments, Q1 revenue usually shows a quarterly decrease. Goldman Sachs predicts that TSMC’s revenue in the first quarter of 2024 will decrease by 2.9% quarter-on-quarter (in U.S. dollars), while the average decline over the past five years has been 6%.

UBS estimates that Q1 revenue will decrease by 7% quarterly (in U.S. dollars), and by 10% in Taiwan dollars. Xiaomojiao estimates that first-quarter revenue will drop by 3% to 4% quarter-on-quarter; Nomura, the most conservative, estimates that Q1 revenue will fall by 7% to 8% quarter-on-quarter, also in U.S. dollars.

3. Estimated gross profit margin for the first quarter and full year

TSMC once stated at the conference that its long-term gross profit margin can be maintained above 53%. The actual gross profit margin in Q1, Q2, and Q3 last year were 56.3%, 54.1%, and 54.3%, respectively, and the Q4 gross profit margin is estimated to be approximately 52.5%.

Affected by the recent adverse foreign exchange impact, many foreign investors predict that gross profit margin will fall in both the first quarter and the full year of 2024. Among them, Goldman Sachs predicts that the gross profit margin will drop to 51.1% in the first quarter of 2024 and 52.7% for the full year of 2024. UBS estimates Q1 gross profit margin at 50.5% and full-year gross profit margin at 52.8%.

Xiaomo believes that TSMC's Q1 gross profit margin will be between 50% and 51%. In 2024, the gross profit margin will be flat and remain above 50%, with an estimated value of 52.8%. The Nomura report pointed out that due to the appreciation of the New Taiwan dollar and the assistance of 3 nanometers, the gross profit margin for the year is estimated to be about 51% to 52%.

4. Overseas expansion slows down and capital expenditures will be reduced

The total investment in TSMC’s Arizona plant exceeds US$40 billion, but subsidies from the U.S. Department of Commerce have not yet been allocated. Foreign investors believe that TSMC will postpone some overseas production capacity expansion and reallocate equipment more efficiently to reduce capital expenditures this year.

Among them, Goldman Sachs predicts that capital expenditures will drop sharply from US$32 billion to US$28 billion in 2024, an annual decrease of 12%. UBS forecasts capital expenditures of $30 billion in 2024. Nomura estimates that full-year capital expenditures will be between US$30 billion and US$31 billion, slightly lower than the previous year's US$32 billion.

5. The proportion of AI revenue is gradually increasing

The Xiaomo report pointed out that as AI begins to affect all aspects of the semiconductor ecosystem and promotes the growth of the semiconductor industry, TSMC is in a leading position in the industry, with more than 95% of the market share in AI accelerator chips, and in the field of device-side AI. With a market share of more than 80%, this market share is even higher than the dominant position in the 5G mobile phone product cycle (2019-2022). Xiaomo simultaneously predicts that AI’s share of TSMC’s revenue will increase from 6% in 2023 to 15% in 2027.

UBS pointed out that TSMC is in the best position for growth in the next 18 months because of its very high market share in 4nm and 3nm, and is expected to benefit from the growth of the Edge AI edge computing field to enhance PC, smart Market share of mobile phones, mobile devices, Internet of Things, etc.

6. Target price

Goldman Sachs raised the target price of TSMC to 758 yuan, while UBS lowered it to 750 yuan. As for JPMorgan, it maintained its target price of 750 yuan, and Nomura maintained its target price of 700 yuan.

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