The Taiwan Semiconductor Manufacturing Company (TSMC) released its earnings results for the second quarter of 2022 earlier today in Taiwan. The results were followed by a customary management conference in which executives from the world’s largest contract chip manufacturer shared details about the company’s latest technologies, the state of the semiconductor industry and capital expenditure plans at a time when the chip sector is in the middle of a cyclical downturn. TSMC’s revenue and net income grew by double digits annually during the second quarter, and the company expects exchange rate fluctuations to further help it down the road but warned about the rising costs of electricity and raw materials impacting its margins.
TSMC Chief States Chip Correction Will Last Throughout 2022 And End In 2023
TSMC’s earnings release came at a time when the company’s primary rival in the contract chipmaking arena, Samsung, rushed to announce that it will take the lead in mass-producing chips on the 3-nanometer (nm) process node. However, Samsung’s announcement did not indicate whether the fab had won any major orders for its process technology, which are crucial for any new technology as it enters production. At its earnings call earlier today, TSMC shared that its plans for the same manufacturing process and its successor are on track. The company’s management outlined that 3nm will enter mass production in the second half of this year, and at the same time the executives also shared details for TSMC’s 2nm node. The 2nm process is 10%-15% faster than the 3nm node at the same power consumption levels and 25% to 30% more efficient at the same frequencies. However, reports have also stated that in terms of density, the new process makes an unimpressive 10% increase over its predecessor, with TSMC yet to provide any details on the matter. As for production, TSMC’s management outlined that2nm will enter trial production in 2024 and mass production in 2025, repeating their earlier timelines. TSMC’s chief executive officer Dr. C.C. Wei also shared his thoughts on the ongoing inventory correction in the semiconductor industry. Dr. Wei outlined that he believes that it will take several quarters for inventory levels to stabilize and correct themselves, with the earliest being 2023. However, he remained optimistic about his company still being able to sustain growth levels during this time period and meet a compounded annual growth rate (CAGR) ranging between 10% and 15%. The fab’s chief financial officer Mr. Wendell Huang shared that his company expects days of inventory outstanding (DOI) in the industry to decline during the second half of this year. He also shared that while it is too early to assess the impact that 3nm production will have on TSMC’s expenses, it is estimated that the impact should range around 2%. Talking about costs, Dr. Wei shared that he expects positive exchange rate fluctuations will help his company’s revenues but cautioned that a rise in energy and raw materials costs will offset the benefit. However, he also believes that TSMC can maintain a 54% gross margin in the long term. Finally, the executives also shed some light on TSMC’s plans in the U.S. The company is building its largest facility in the country which is expected to become operational by 2024, and its executives denied that they were pursuing a joint venture in America. Additionally, they also stressed that TSMC is continuing to seek subsidies from the government, in response to a question about a stalled bill in the U.S. Congress that is currently waiting on bipartisan support.
