Taiwan Semiconductor Manufacturing Co
The key Nvidia Corp
The contract chipmaker attributed the quarterly performance to robust smartphone and AI-related demand for its 3nm and 5nm technologies.
Its gross margin is 57.8%, up from 54.3% a year ago. The operating margin grew to 47.5% from 41.7% a year ago. It expects fourth-quarter revenue of $26.1 billion-$26.9 billion, above the Street consensus of $24.86 billion.
Needham analyst Charles Shi reiterated Taiwan Semiconductor with a Buy and a $210 price target.
Needham: By node, relative to Shi's estimates, Taiwan Semiconductor's third-quarter print shows a much more robust performance of 3nm and a slightly weaker performance of 5nm.
The analyst noted the 3nm upside should be primarily due to Apple Inc
The gross margin performance, which is now back in the high 50s range, is a positive sign as Taiwan Semiconductor overcomes several cost challenges anticipated by management earlier this year, including 3nm dilution, 5nm to 3nm conversion cost, and electricity cost increases, he said.
Interestingly, the company had flagged 5nm and 3nm wafer prebuild as part of the reason for the gross margin upside, Shi added.
The analyst noted that Taiwan Semiconductor raised its full-year revenue growth target from "slightly above the mid-20s" to "close to 30%" while maintaining the 10% ex-memory semiconductor growth outlook.
Taiwan Semiconductor expects to triple AI revenue this year, which will account for mid-teens percent of its total revenue.
Based on management commentary, Shi estimates Taiwan Semiconductor's AI revenue was around $4 billion in 2023 and will likely reach $13 billion in 2024.
Taiwan Semiconductor has guided AI to account for 20% of the total revenue by 2028, translating to ~$33 billion+ if the 15%+ total revenue CAGR continues through the next four years.
Taiwan Semiconductor's reported revenue split between technology nodes suggests that the non-wafer revenue, the majority of which comes from packaging, saw a meaningful step up from $2.4 billion in the second quarter to $3.2 billion in the third quarter, a 36% increase sequentially.
This could be partially driven by Apple's ramp that drives InFO revenue. Still, the magnitude of the sequential growth is above seasonality (~20% sequentially) and supports the rumor that Taiwan Semiconductor may have released 60%-80% more CoWoS capacity in the third quarter.
Taiwan Semiconductor expects 2024's CapEx to be slightly above $30 billion, a $1 billion trim to 2024's CapEx budget. Last quarter, it tightened the CapEx guidance range from $28 billion-$32 billion to $30 billion-$32 billion and effectively raised CapEx by about $1 billion.
On the bright side, with Taiwan Semiconductor reporting the quarterly CapEx for the first three quarters of the year to be only $6 billion per quarter, it needs to spend ~$12 billion CapEx in the fourth quarter. The magnitude of the step-up is likely driven by the initial 2nm buildout.
Price Action: TSM stock is up 11.7% at $209.41 at last check Thursday.
