Taiwan Semiconductor Manufacturing Company, the world's largest chip producer, has signaled the downturn in semiconductor demand could end and possibly bottom in 2024.
On a conference call with investors on Thursday, TSMC Chief Executive C.C. Wei told Morgan Stanley's Charlie Chan, "As I said, we do observe some early signs of demand stabilization in PCs and smartphone end market. Those two segments are the biggest segments for TSMC's business."
Chan asked TSMC executives when they believed the chip cycle was bottoming out.
"We want to say that 2024 will be a very healthy growth, but right now, did we see the bottom? Very close, very close. We want to -- I cannot give you a number, but it's -- because it's too early to call it a sharp rebound," Wei responded.
However, Wei pointed out that "the macro environment remains uncertain" and will likely weigh on customers and inventory control in the first half of 2024.
Chan asked Wei another question: "So just I want to kind of verify because we do see some green shoots and some rush orders to wafer foundry sector?"
Wei responded: "Charlie, the AI demand continues to grow stronger and stronger," but cautioned that it's still too early to expect a sharp rebound.
Before the investor call, TSMC reported revenue in the third quarter that dropped 11% from a year earlier, as sales for chips used in computers and smartphones fell. Net profit also dropped by 25% compared with the same quarter a year ago.
Investors on Wednesday were greeted with news from TSMC's tool supplier ASML, who warned of flat sales in 2024, yet more evidence the rebound might not be robust.
Here's the investor call transcript (courtesy of Bloomberg):
After the earnings call, Bruce Lu and Evelyn Yu of Goldman told clients that they reiterated a "buy" on TSMC/ADR and added TSMC/ADR to their Conviction List.
"After a prolonged inventory digestion cycle, we expect a broad-based recovery of TSMC's UTR in 2024E as supported by 1) re-stocking demand, 2) PC/server demand resumption, and stabilizing smartphone demand," the analysts said.
They provided clients with the top highlights from the earnings call:
- healthy inventory digestion progression,
- potentially stronger smartphone demand recovery,
- capex outlook likely better than feared
- technology leadership intact,
- N2 R&D progress is on track, with meaningful revenue contribution likely in 2026,
- back-end business likely growing stronger than guided, and
- overseas expansion is progressing well.
If Goldman is correct, the inventory correction cycle for TSMC could be over next year, potentially unleashing a new growth chapter. Pro subs can read the full report in the usual place...
