New Analytical Report Covers TSMC’s Strong Second Quarter Earnings, Positive Forecasts and Breaking News on Future 2 and 3 Nanometer Chips

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TSMC is a great benchmark for the health of the semiconductor industry given that it manufactures 70% of all key smartphone chipsets. The company posted record profits in the second quarter of 2022, with growth in advanced semiconductor content in processing (AI, GPU, SoC) and connectivity (5G) being the key drivers.

Key Financial Highlights:

  • Net revenue grew 37% year-over-year to $18.2 billion, driven by high-performance computing (HPC), IoT and automotive-related demand.
  • Gross margin and operating margin were 59.1% and 49.1% respectively, up 3.5 percentage points thanks to a favorable exchange rate, cost improvements and the sale to added value.
  • Geographically, North America represented the highest share (64%) of total net revenue.

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N2 and N3 updates

  • The N2 node will implement the concept of platform scaling in which the advantages of power distribution schemes, advanced conditioning and chiplet will be used to control costs and have an overall advantage.
  • The N3 node will be the longest node to use before migrating to N2 due to the introduction of the TSMC N3 FinFlex architectural innovation, which gives customers the flexibility to create designs precisely tailored to their needs with building blocks implementing the most optimized and integrated fin configuration in the same chip.
  • Introduction of 3nm nodes will begin in the second half of 2022 and customer adoption and revenue contribution will begin in the first quarter of 2023. The introduction of 3nm nodes will reduce the gross margin by 2% to 3% in 2023.
  • As capital expenditures increase, some of them will be spread over quarters as WFE vendors struggle with backlogs as building manufacturing equipment also requires semiconductors! This will help TSMC achieve healthy margins for the coming quarters and offset any decline in gross margin due to N3 introductions.

Key points to remember

  • TSMC’s net revenue will exceed $75 billion in 2022, which means it will exceed Intel’s revenue.
  • HPC (High Performance Computing) will drive TSMC’s long-term revenue growth and reach a CAGR of 15%-20%.
  • The System on Integrated Chips (SoIC) 3D IC design solution will be a significant part of long-term revenue due to its widespread application in HPC.
  • Efforts to resolve tool delivery timing issues in advanced and mature nodes through discussions with all supply chain partners remain a top priority.
  • Growing silicon content, shipments and ASP will drive long-term revenue growth.
  • Inventory adjustment will continue through the first quarter of 2023 and ease in the second half of 2023. However, long-term semiconductor demand will be firm.

For more details, see the latest Counterpoint report. TSMC’s official second quarter 2022 financial results report is available here. Their Q2 2022 press release can be read here.

The point that struck me the most in this Counterpoint report is that the introduction of 3nm nodes will start in H2 2022 and customer adoption and revenue contribution will begin in Q1 2023. Apple will introduce something new for iPhone 14. They will launch four iPhone 14 models.

You must be wondering if the iPhone 14 Pro models, the only ones that will sport the A16 chip, will be showcased at the September event but won’t ship until Q1 2023 to launch with the new 3nm chip from TSMC.

Considering that Apple is TSMC’s premier smartphone customer, it’s hard to believe that Apple’s competitors would have access to TSMC’s latest 3nm chip for their smartphones before Apple.

Shipping iPhone 14 Pro models in Q1 2023 would also thwart Samsung’s latest Galaxy smartphone which traditionally ships early to mid Q1 every year.

Could this actually happen? Unless TSMC can ship the 3nm for Apple exclusively for Q4 2022 sales, that could be a long-winded possibility. I just can’t see Apple’s iPhone 14 Pro not being the first smartphone with TSMC’s most advanced 3nm chip.

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