TSMC to build more fabs, profit exceeds expectations

Latest update time：2024-10-14

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Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker and a major producer of advanced chips used in artificial intelligence applications, with clients including Apple and Nvidia, is expected on Thursday to report a 40% rise in third-quarter profit as demand soars.

TSMC is expected to post a net profit of NT$298.2 billion (US$9.27 billion) in the quarter ending September 30, according to LSEG SmartEstimate, which weighs forecasts from 22 analysts more favorably than forecasts from analysts who have been consistently accurate.

This estimate compares to a net profit of NT$211 billion in the third quarter of 2023.

TSMC reported a sharp increase in third-quarter revenue (in New Taiwan dollars) last week, far exceeding market expectations. The company released its revenue forecast in U.S. dollars during its earnings call.

"Most of TSMC's major customers, including Apple, Nvidia, AMD, Qualcomm and MediaTek's new products, rely heavily on TSMC's advanced process technology," said Li Fangguo, chairman of Uni-President Capital Management.

Lee added: "TSMC's third-quarter earnings will significantly exceed expectations."

TSMC will hold its quarterly earnings call at 06:00 GMT on Thursday to update its outlook for the quarter and full year, including its capital spending to expand production.

TSMC is spending billions of dollars to build new factories overseas, including a $65 billion plan to build three plants in Arizona, but the company has said most manufacturing will remain in Taiwan.

TSMC raised its full-year revenue forecast in its last earnings call in July and adjusted its capital expenditure plan for this year to $30 billion to $32 billion, compared with a previous forecast of $28 billion to $32 billion.

The artificial intelligence boom has boosted shares of Asia’s most valuable companies, with TSMC’s Taipei-listed shares surging 77% so far this year, compared with a 28% gain for the broader market.

Plans to build more fabs in Europe

Taiwan Semiconductor Manufacturing Co. is planning to build more factories in Europe, focusing on the artificial intelligence chip market, as the company expands its global influence, according to a senior Taiwanese official.

“They have already started building the first fab in Dresden, and they are already planning several future fabs for different market segments,” Wu Cheng-wen, chairman of Taiwan’s Science and Technology Council, said in a Bloomberg Television interview aired on Monday.

Wu did not specify a timeline for the Taiwanese chipmaker's further expansion in Europe. TSMC said in an email that the company remains focused on current global expansion projects and has no new investment plans at this time.

TSMC, the world’s largest chipmaker that does most of its semiconductor production in Taiwan, is spending tens of billions of dollars to build new factories in the United States, Japan and Germany, in part as a hedge against growing geopolitical tensions with China.

In August, Intel broke ground on a 10 billion euro ($10.9 billion) chip manufacturing plant in Dresden, Germany, which will be Intel's first plant in the European Union. About half of the project will be paid for by state subsidies and is expected to be put into production by the end of 2027.

Wu said the artificial intelligence market, which includes chips from U.S. companies Nvidia Corp and Advanced Micro Devices Inc, will be the most important segment, while other semiconductor companies with alternative designs could also provide opportunities for TSMC.

“Maybe they can also do business in the European market, so TSMC is looking at the European market to plan the next few fabs,” he said, adding that the company needs to evaluate whether to expand in Dresden or build a fab elsewhere in the EU.

While established European chipmakers such as NXP Semiconductors NV and Infineon Technologies AG focus mainly on mature technologies in the industrial and automotive sectors, a number of next-generation chip design companies have emerged in Europe, including Germany's Black Semiconductor and Axelera AI of the Netherlands.

TSMC's overseas factories also create opportunities for surrounding countries and cities to obtain investment from its suppliers.

Wu said Taiwan is considering supporting TSMC suppliers to invest in factories in the Czech Republic near Dresden, and he also said he is seeking to provide joint research and development projects for Taiwanese and Czech academics.

In addition, Wu said he expects Taiwanese chip companies to face pressure to further expand in the U.S. regardless of the outcome of the November presidential election. TSMC has so far pledged to invest more than $65 billion to build three factories in Arizona.

"In the short term, it may be painful for Taiwanese companies because if they move there, the cost will be higher," he said. "But in the long run, from my point of view, it may be good for them because they can improve themselves."

TSMC's capital expenditure will remain unchanged this year

At TSMC's (2330) earnings conference on Thursday (17th), capital expenditure dynamics became one of the market's focuses. Analysts believe that TSMC's capital expenditure range this year should remain unchanged, and next year's capital expenditure plan will still be announced at the next earnings conference (January next year). At present, it seems that capital expenditure in 2025 should increase compared to this year, and more investment will be made in research and development.

TSMC is currently in a silent period before the earnings conference. Legal sources pointed out that TSMC's active efforts to mass-produce 2nm-related products are the main reason for the subsequent upward capital expenditures. It is estimated that capital expenditures in 2025 will reach US$32 billion to US$36 billion, the second highest in history, with an annual growth rate of 20%. ASML and Applied Materials are the two major winners of TSMC's capital expenditure increase, and Taiwan's related cooperative factories will also benefit from it.

TSMC's historical capital expenditure high was in 2022, when it set a record of US$36.29 billion.

TSMC mentioned at its legal conference in July that in order to support customer demand, the capital expenditure range this year will be slightly narrowed. The original estimate in April was US$28 billion to US$32 billion, and it was adjusted to US$30 billion to US$32 billion in July. TSMC did not raise the upper limit of this year's capital expenditure at that time, but moved the lower limit upward.

TSMC's actual capital expenditure in 2023 was US$30.45 billion, lower than the lower limit of the US$32 billion the company expected at the earnings conference in October 2023. This was a rare failure to meet the target, sparking market discussion.

TSMC explained at the time that it was mainly considering short-term market uncertainties and continued to appropriately tighten capital expenditures.

Analysts expect that TSMC will maintain its previous view on this year's capital expenditure at its earnings conference on Thursday and will not change it; capital expenditure in 2025 is expected to grow compared to this year, but the plan is not expected to be announced until the earnings conference early next year at the earliest.

It was previously reported that TSMC continued to increase its R&D efforts in the most advanced processes such as 2nm, and the subsequent demand for 2nm was stronger than expected, so the capacity planning was also reported to be introduced to the Southern Taiwan Science Park. According to industry sources, TSMC's 2nm capacity construction is estimated to include the fourth phase of Baoshan in Hsinchu Science Park and the second phase in Kaohsiung. If the relevant plan of Southern Taiwan Science Park comes true, it is estimated that it will help the 2nm family sprint to at least eight phases and eight plants.

It is estimated that as TSMC's capital expenditure grows next year, its R&D investment will also continue to increase.

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