Blue Whale News, October 17th - On October 17th, TSMC released its third quarter financial performance report as of September 30, 2024. According to the financial report, TSMC's consolidated revenue for the third quarter was NT $759.69 billion (currently approximately RMB 168.3 billion), a year-on-year increase of 39%. Net profit recorded NT $325.26 billion, a year-on-year increase of 54.2%.
At the earnings conference call, TSMC predicted that its fourth quarter revenue would reach $26.1 billion to $26.9 billion, higher than the $19.62 billion in the same period last year. The annual capital expenditure is expected to be slightly higher than $30 billion, consistent with the previous expectation of $30 billion to $32 billion. TSMC Chief Financial Officer Huang Renzhao stated that 70% to 80% of capital expenditures will be used for advanced processes, and TSMC will continue to invest as strong structural AI related demand continues to grow.
TSMC's quarterly performance and revenue outlook have to some extent alleviated concerns about the false prosperity of AI. As the world's largest wafer foundry manufacturer, TSMC's main customers include Apple and Nvidia, providing services such as chip manufacturing and advanced packaging technology. Thanks to the strong demand for AI chips, TSMC's stock price has surged by over 70% since the beginning of this year.
But as Nvidia accelerates the release pace of AI chips and strives to consolidate its dominant position, the symbiotic relationship with TSMC over the past thirty years has also become tense. According to the Silicon Valley technology media The Information on October 16th, Nvidia quickly discovered problems with the new generation Blackwell chip after launching it in March this year. This led to mutual accusations between Nvidia and TSMC, and ultimately Blackwell had to delay mass production and delivery until the fourth quarter.
The report also pointed out that due to Nvidia's increasingly complex chip designs, TSMC has become the only chip manufacturer capable of completing them. This gave TSMC more initiative in pricing, and when TSMC announced a price increase in June this year, Nvidia had no choice but to accept it. Nvidia CEO Huang Renxun also responded at the time that TSMC's pricing was indeed too low and would support its price increase measures.
When asked if raising prices for customers was too aggressive, TSMC Chairman and President Wei Zhe jia replied in a conference call that he is not inclined to use the term "bargaining power" because TSMC considers all customers as partners. He stated that top AI suppliers have gross profit margins that TSMC may never be able to achieve, but he is very pleased to see their success. We are in different industries, and TSMC is a capital intensive enterprise. Therefore, we need very high growth profit margins to survive and achieve sustainable and healthy growth. That is why we have formulated our pricing strategy
Specifically, advanced processes (including 7nm and below processes) accounted for 69% of TSMC's total wafer revenue in the third quarter, higher than 67% in the second quarter. Among them, the sales of 3nm, 5nm, and 7nm chips accounted for 20%, 32%, and 17% respectively. According to Wei Zhejia, many customers are interested in the more advanced 2nm chip process, and Apple's A16 chip is also very attractive for AI servers. The demand for these two chips is higher than expected, so TSMC is working hard to prepare its capacity.
From a business perspective, the revenue of HPC (high-performance computing) business accounted for 51%, a decrease from the previous quarter, mainly including GPU, CPU, AI accelerators, etc. The revenue from smartphone related businesses accounts for 34%, while other businesses such as IoT, automotive, and digital consumer electronics account for 7%, 5%, and 1% respectively.
During the conference call, Wei Zhejia mentioned that overall semiconductor demand, except for AI, has begun to stabilize and improve. Although the single chip gross profit of PCs and smartphones is still in low single digits, TSMC is incorporating more AI into its chips. He expects that in the next few years, driven by artificial intelligence related applications, the PC and smartphone fields will maintain healthy growth.
Earlier this week, TSMC's important equipment supplier and Dutch lithography machine giant ASME announced its third quarter financial report ahead of schedule due to technical failures. According to the financial report, as a more upstream enterprise in the chip industry, ASML's new orders for the quarter were only 2.633 billion euros, less than half of analysts' expectations. ASML also lowered its expectations for sales and bookings in 2025.
ASML CEO Christophe Fouquet explained during a conference call that despite strong demand for AI related servers, the recovery of demand in the automotive, mobile, and PC markets has been particularly slow, making customers more cautious in increasing production capacity and spending. Although ASML did not specify the customer identity that lowered expectations, the companies that analysts first focused on included major customers such as TSMC, Intel, and Samsung.
The weak performance led to a 15.6% drop in ASML's stock price on October 15th local time, marking the largest single day decline in 26 years and dragging down chip stocks such as Nvidia and Intel. But so far, the downward trend has eased somewhat.
On the day of the release of the third quarter financial report, TSMC Radio's stock closed at NT $1035 per share, slightly down 0.96% from the previous day, while the US stock market rose more than 8% at one point before trading.