Taiwan Semiconductor (TSMC) Q4 Profit Declines 23%, Eyes Rebound in 2024: Insights and Projections

In the ever-evolving landscape of semiconductor manufacturing, Taiwan Semiconductor Manufacturing Co Ltd (TSMC) faces a 23% dip in its fourth-quarter profit, marking its third consecutive quarter of decline. However, analysts foresee a promising trajectory in 2024, driven by rebounding demand and the evolving dynamics of the global semiconductor market.

Q4 Performance Analysis

TSMC’s Financial Overview and Projection

 

Taiwan Semiconductor Manufacturing Co Ltd is anticipated to unveil a fourth-quarter net profit of T$226.4 billion ($7.21 billion), indicating a notable 23% reduction compared to the previous year’s robust figure of T$295.9 billion. Despite this downturn, the company’s Q4 revenue of T$625.5 billion ($20.10 billion) managed to surpass both market and company expectations.

 

Factors Influencing Q4 Performance

Balancing Act Amidst Global Semiconductor Demand Fluctuations

 

The downturn in fourth-quarter profit is attributed to the waning global demand for semiconductors in the latter part of 2022. However, this dip is contextualized by TSMC’s remarkable performance in 2022, fueled by the surge in post-pandemic demand. Customers like Apple and Nvidia played a pivotal role in sustaining TSMC’s momentum during this period.

 

The Resilience of TSMC in 2022

AI Applications Driving Stock Prices

 

Despite the overall market challenges, TSMC’s stock witnessed a remarkable 32% surge in 2023, outpacing the broader market’s gain of 27%. This growth is predominantly attributed to the booming demand for chips in artificial intelligence (AI) applications. The AI boom has become a cornerstone in reshaping the landscape of semiconductor manufacturing.

 

Analyzing the Industry Dynamics

Projections and Outlook for 2024

 

Analysts eagerly await TSMC’s outlook for 2024, focusing on indicators of a rebound in demand. Fubon Securities analysts express optimism about Apple wafer demand remaining steady in the short term. While a seasonal slowdown in 1Q24 is expected, analysts from KGI Securities anticipate outperformance in first-quarter sales, attributing it to demand recovery and the growing significance of 5G and high-performance computing applications.

 

Apple’s Steady Wafer Demand

Navigating Seasonal Slowdowns

 

Fubon Securities highlights their initial concerns about TSMC’s first-quarter outlook but now believes that Apple wafer demand remains stable in the short term. Despite the anticipated seasonal slowdown in 1Q24, no additional order cuts have been observed, indicating a level of resilience in TSMC’s key markets.

 

Anticipated First Quarter Sales Performance

Exceeding Typical Slow Season Seasonality

 

KGI Securities anticipates TSMC’s first-quarter sales to outperform the typical slow season seasonality. The optimism stems from expectations of mid-20% top-line growth in U.S. dollar terms for the full year. This growth projection is underpinned by the recovery in demand and the increased silicon content driven by the expanding applications of 5G and high-performance computing.

 

Market Dynamics and Share Performance

AI Boom and TSMC’s Market Position

 

The AI boom has played a pivotal role in elevating TSMC’s market position. With Asia’s most valuable company experiencing a significant surge in its Taipei-listed stock, the focus remains on sustaining growth in the dynamic semiconductor market. TSMC’s stock surge in 2023 is emblematic of the company’s adept navigation through challenging market conditions.

 

TSMC’s Stock Performance in 2023

Outpacing the Broader Market

 

TSMC’s Taipei-listed stock witnessed a notable 32% surge in 2023, outperforming the broader market’s gain of 27%. This surge is a testament to the company’s resilience and strategic positioning in the face of market fluctuations.

 

AI as a Driving Force

Shaping the Semiconductor Landscape

 

The increasing demand for semiconductors in AI applications has become a driving force behind TSMC’s stock surge. As AI continues to permeate various industries, the need for advanced semiconductor technology grows, positioning TSMC at the forefront of this transformative wave.

 

Earnings Call and Market Response

Analysts’ Insights and Market Expectations

 

As TSMC gears up to report its earnings at 0600 GMT on Thursday, analysts’ insights and market expectations take center stage. The focus remains on TSMC’s projections for the year ahead, and analysts are keen to decipher the company’s strategic responses to the evolving semiconductor landscape.

 

Analysts’ Expectations

Balancing Concerns and Optimism

 

Analysts expect a balanced assessment of TSMC’s performance and outlook. Despite the anticipated profit decline in Q4, the broader sentiment is optimistic, driven by the expectation of rebounding demand and strategic market positioning.

 

Market Response to Earnings Call

Interpreting TSMC’s Strategic Moves

 

The market response to TSMC’s earnings call will be crucial in gauging the confidence of investors and industry stakeholders. As TSMC articulates its strategies for navigating the dynamic semiconductor market, the response will be indicative of the company’s perceived resilience and adaptability.

 

FAQs:

Why is TSMC expecting a 23% drop in fourth-quarter profit?

TSMC’s anticipated profit decline is attributed to the global weakening of semiconductor demand in the latter half of 2022. The company, however, had a strong performance in 2022, benefiting from pent-up post-pandemic demand.

What factors contributed to TSMC’s stock surge in 2023?

The surge in TSMC’s stock in 2023 can be primarily attributed to the increased demand for chips in AI applications. The company’s strategic positioning and resilience in navigating market challenges further contributed to its stock outperforming the broader market.

What are analysts’ expectations for TSMC’s outlook in 2024?

Analysts express optimism about TSMC’s outlook in 2024, focusing on indicators of rebounding demand. Despite a seasonal slowdown in the first quarter, the consensus is that TSMC will see steady demand recovery driven by factors such as 5G and high-performance computing applications.

 

Final Thoughts:

As TSMC confronts a temporary dip in its fourth-quarter profit, the overarching narrative remains one of resilience and adaptability. The dynamic semiconductor market, fueled by AI applications and technological advancements, positions TSMC for continued growth. The company’s strategic responses, as unveiled in the upcoming earnings call, will likely shape its trajectory in 2024 and beyond. Investors and industry observers await with anticipation, recognizing the pivotal role TSMC plays in shaping the future of semiconductor manufacturing.