TSMC Reports December Sales Decline, But Q4 Results Beat Expectations

Taiwan Semiconductor Manufacturing (TSMC), the world's largest third-party chip manufacturer, announced a drop in sales for December compared to the prior year, yet the overall performance for the quarter surpassed expectations. Nonetheless, the demand for artificial intelligence (AI) chips indicates a potential recovery in chip demand moving forward.

According to TSMC's monthly report, revenue for December declined by 8.4% compared to the same period last year and was down 14% from November. However, when considering the quarterly performance as a whole, the revenue remained relatively stable year over year, surpassing expectations. This positive trend in chip demand suggests a promising outlook for TSMC in 2024.

In terms of figures, TSMC's quarterly sales reached 625.5 billion Taiwanese dollars, approximately $20.1 billion. Analysts had predicted quarterly sales to amount to 615.8 billion Taiwanese dollars, according to a FactSet poll.

Despite the fluctuations in sales, American depositary receipts of TSMC demonstrated minimal movement in premarket trading on Wednesday.

As a leading provider of processors for Apple iPhones, Qualcomm mobile chipsets, and Advanced Micro Devices, TSMC plays a crucial role in the semiconductor industry. Additionally, TSMC holds a significant position as the primary manufacturer of AI chips for Nvidia—the market leader in graphics processing units (GPUs) utilized for AI applications.

While TSMC stands to benefit from the AI boom, it is important to note that AI chips constitute only a fraction of the company's overall business. Consequently, the decline in demand for consumer electronics has offset some of the gains generated by AI chip production. In fact, Taiwan's total sales for 2023 experienced a 4.5% decrease compared to the previous year.

To meet the growing demand for AI chips, both TSMC and Nvidia have taken steps to address supply constraints. TSMC management has confirmed plans to double advanced chip-packaging capacity, known as CoWoS, by the end of 2024. CoWoS technology plays a critical role in manufacturing Nvidia's highest-performing AI chips.

According to analysts at Deutsche Bank, the significant expansion of CoWoS at TSMC suggests that the supply and demand balance in GPUs for AI training could potentially be achieved by the end of this year.

In premarket trading, Nvidia shares saw a 1.1% increase, while Apple experienced a 0.1% increase. Other companies supplied by TSMC, such as Qualcomm and AMD, also witnessed slight gains of 0.6% and 0.7%, respectively.

Written by Adam Clark