AI and advanced process demand accelerate sales momentum
Earnings call on the 15th to provide clarity on Q4 outlook and profitability impacts from 2nm production expansion
Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, has surpassed its total 2023 annual revenue in just nine months. Aggregated monthly data reveals that the company’s growth rate for the third quarter exceeded 50% compared to the same period last year.
According to the September sales data released by TSMC on the 8th, cumulative revenue from January to September reached approximately 3.8987 trillion New Taiwan Dollars (TWD), a 41.1% increase year-on-year. This figure has already eclipsed the total revenue of approximately 3.8091 trillion TWD recorded for the entirety of last year.
The growth momentum accelerated in the third quarter. Total revenue from July to September hit approximately 1.4942 trillion TWD, up 50.9% year-on-year and 17.6% quarter-on-quarter. The year-on-year growth rate, based on TWD, marks a significant uptick from the 36.0% recorded in the second quarter, according to calculations based on monthly filings.
Revenue for September, the final month of the quarter, stood at 511.86 billion TWD. While this represents a marginal 0.6% decline from the record-breaking figures seen in August, it marks a robust 54.6% increase compared to the same month last year. Essentially, the revenue scale established in August—which grew 10.1% month-on-month—remained largely sustained throughout September.
This performance trajectory aligns with the company’s prior assessments regarding the strength of demand for AI and advanced process nodes. During the second-quarter earnings call in July, TSMC noted that demand for AI-related applications remained exceptionally strong. At the time, the company reported that High-Performance Computing (HPC) revenue rose 20% quarter-on-quarter, accounting for 66% of total revenue. Based on this, TSMC projected that its annual revenue, in dollar terms, would grow by slightly more than 40% compared to the previous year.
The company is also ramping up investments to meet rising demand. In July, TSMC increased its annual capital expenditure guidance to between 60 billion and 64 billion USD, stating that 70% to 80% of this budget is allocated to advanced process technologies. In its third-quarter outlook, the company cited both demand for advanced nodes and the rapid expansion of 2-nanometer production as key drivers.
However, the expansion of production capacity comes with inherent upfront cost burdens. TSMC previously anticipated that the ramp-up of 2nm production would act as a drag on gross margins in the second half, potentially lowering them by 3 to 4 percentage points. The company explained that robust demand for advanced processes and continuous productivity improvements are expected to partially offset these costs. TSMC’s guidance for third-quarter gross margin was set at 65% to 67%, slightly lower than the 67.7% recorded in the second quarter.
Investors’ focus now shifts to the third-quarter earnings call scheduled for the 15th, where the primary objective will be to see how the surge in revenue and the cost pressures from 2nm expansion have filtered through to actual profitability. Additionally, management’s updated outlook for fourth-quarter revenue and full-year growth will serve as a critical bellwether for whether this high-growth trajectory will persist through the end of the year.
