Taiwan Semiconductor Manufacturing Company (TSMC), the largest semiconductor fabrication firm in the world, has a “sunny 2024 outlook” amid a cyclical rebound in global wafer demand, according to Wedbush analysts.
Their bright outlook comes despite a ho-hum fourth-quarter trading update posted on Thursday, which noted that earnings per share fell 19.3% year on year to $9.21.
“Our fourth quarter business was supported by the continued strong ramp of our industry-leading 3-nanometer technology,” said Wendell Huang, vice president and chief financial officer of TSMC.
In the fourth quarter, shipments of cutting-edge 3nm chips accounted for 15% of total wafer revenue while 5nm chips accounted for 35% and 7nm chips 17%.
Gross margin for the quarter was 53%, operating margin was 41.6%, and the net profit margin was 38.2%.
Despite earnings trending in the wrong direction, “TSMC's confidence around near-term fundamentals appears to have improved significantly over the past four to five months”, stated Wedbush analysts.
The world’s foremost semiconductor fabrication plant’s more constructive view “manifested in TSMC's stronger-than-anticipated first-quarter forecast”, said analysts.
Regarding those forecasts, TSMC anticipates between $18 billion and $18.8 billion in first-quarter revenues and a gross profit margin between 52% and 54%.
Operating profit margin is expected to be between 40% and 42%.
Wedbush noted that both sales and gross margin guidance exceeded the prior consensus outlook, while solid 2024 revenue guidance in the low-to-mid 20% growth range is modestly above TSMC's intermediate-term guidance for a 20% compound annual growth rate.
“We see this more bullish outlook as predicated upon some combination of optimism around a growing contribution from AI, better expectations for traditional end market trends in 2024
(with comps benefiting from customer rationalisation of inventories), and TSMC share gains,” said Wedbush.
The company's recent sales strength owes much to the handset sector, particularly Apple, and the high-performance computing segment, which continues to benefit from the escalating growth in AI.
However, Huang did warn that business is expected to be impacted by “smartphone seasonality”, partially offset by continued HPC-related demand.