TSMC's performance has declined for the first time in four years, why?

01
TSMC's revenue has declined for the first time in four years

    On April 20th, TSMC announced its results for the first quarter of the 2023 fiscal year. According to the report, sales in Q1 2023 decreased by 16.1% from $19.93 billion in Q4 2022, to $16.72 billion, and the operating profit margin decreased from 52.0% to 45.5% (Figure 1).

  In the second half of 2022, the emergency state of the COVID-19 will end, semiconductor will enter a serious downward cycle, and TSMC will also be affected. However, although revenue has declined for the first time, its operating profit margin is still 45.5%,Compared to storage manufacturers such as Intel and Samsung, which are in serious deficit situations, TSMC always has a "special" presence.

This article will analyze why TSMC has significantly reduced its revenue and why.

In short, the conclusion is that semiconductors for the United States, cutting-edge (7nm and 5nm), high-performance computers (HPC: High Performance Computing), and smartphones are declining. Therefore, if demand for HPC and smartphones recovers, it can be predicted that TSMC's performance will improve.

02
Sales revenue of TSMC at each node

  Figure 2 shows the quarterly sales of TSMC's various process nodes. As mentioned in previous articles, TSMC's sales have skyrocketed since the mass production of EUV equipment.

  Firstly, TSMC first used EUV on 7nm+in Q3 2019. Initially, 4-5 layers of EUV were used in the hole pattern, and the 5nm produced in Q3 2020 also applied EUV in bulk in wiring. The author

speculates that the EUV has approximately 15 layers.

     Sales of less than $10 billion in Q3 2019 have doubled by Q3 2022,More than 20 billion US dollars. Through the mass production application of EUV at 7nm+and 5nm, it monopolized the world's cutting-edge chips, thereby driving rapid sales growth.

     However, quarterly sales peaked in Q3 2022. As mentioned at the beginning, there was a significant decrease in revenue in the first quarter   of this year.

    So, which process nodes are experiencing a decrease in sales?

03
Increase or decrease in sales revenue at each process node

    Figure 3 shows the sales increase and decrease of each process node in Q4 2022 and Q1 2023. zero point one eight μ Since m and 10nm have not been produced yet, their sales revenue is zero and there has been no change.

If 0.18 μ M and 10nm are excluded,Except for a slight increase in 65nm, sales at other process nodes have decreased.Therefore, TSMC's overall performance in Q1 2023 should be sluggish.

However, the most advanced 7nm and 5nm have significant reductions. 7nm and 5nm decreased by $1.04 billion and $1.19 billion respectively. The total decrease of 7nm and 5nm is 2.23 billion US dollars, accounting for 70% of the total decrease of 3.18 billion US dollars.

In summary, the reason for TSMC's sluggish performance in Q1 2023 is the significant decrease in sales of cutting-edge 7nm and 5nm. So, what semiconductor sales are decreasing using cutting-edge technologies such as 7nm and 5nm?

04
TSMC's various businesses
Sales proportion

Figure 4 shows the sales ratio of TSMC in each business quarter. In Q1 2023, in descending order of sales share, smartphones accounted for 44%, high-performance computers (HPCs) accounted for 34%, IoT (Internet of Things) accounted for 9%, in car accounted for 7%, and digital consumer electronics accounted for 2%.

Here, semiconductors used for HPC are considered CPUs and GPUs for PCs and servers (image processing processors for AI and other applications). Specifically, they include CPUs from AMD in the United States, GPUs from NVIDIA in the United States, and GPUs from Intel in the United States.

In this situation, it is noteworthy that the share of automotive applications decreased to 2% in the third quarter of 2020 due to a sharp decline in automotive demand, and then steadily increased to 7%, exceeding the pre pandemic level. On the other hand, HPC applications are two major businesses that are tied with smartphone applications and have decreased to 34%, a decrease of 7 percentage points from 41% in the third quarter of 2022.

Now, let's take a look at the sales charts for each platform based on amount (Figure 5). This shows a difference from the sales ratio.

Firstly, it can be seen that the sales ratio of smartphones and HPCs is around 40%, fluctuating on a currency basis while rapidly growing. Automotive applications also saw significant growth after a decline in the third quarter of 2020.

However, HPC application sales peaked at $8.3 billion in the third quarter of 2022 and decreased to $5.7 billion, less than 70%, in the first quarter of 2023. The sales of smartphone applications peaked at $8.4 billion in the fourth quarter of 2022 and decreased by $1 billion to $7.4 billion in the first quarter of 2023.

The above analysis by platform indicates that TSMC's performance significantly decreased in the first quarter of 2023, firstly due to a decrease in HPC shipments, and secondly due to a decrease in smartphone shipments.

05
Proportion of sales revenue in various regions of TSMC

Finally, let's take a look at TSMC's quarterly sales ratio by region (Figure 6). It can be seen that the market share in the United States is around 60-70%. However, it has decreased from 72% in the third quarter of 2022 to 63% in the first quarter of 2023.

On the other hand, after TSMC stopped shipping cutting-edge semiconductors to Huawei after September 14, 2020, its sales to Chinese Mainland fell from 22% in the third quarter of 2020 to 6% in the fourth quarter of the same year. However, since then, the export to Chinese Mainland has been gradually increasing and will recover to 15% in the first quarter of 2023. TSMC cannot transport high priced cutting-edge semiconductors to Chinese Mainland, so it can be said that it has transported a large number of low-cost traditional semiconductors.

06
What is the sales revenue by region?

According to Figure 6, we have plotted TSMC's quarterly sales by region (Figure 7). This shows a different perspective from the sales ratio chart.

Firstly, we can see that exports to the United States peaked at $14.6 billion in the third quarter of 2022 and significantly decreased to $10.5 billion in the first quarter of 2023, an increase of 72%.

07
What caused TSMC's revenue to decline significantly?

TSMC's performance in the first quarter of 2023 was the first significant decline in four years. Revenue decreased by approximately $3.2 billion to $16.7 billion from $19.9 billion in the fourth quarter of 2022.

By analyzing the details of the decline in sales, sales of advanced 7nm and 5nm products have significantly decreased, sales of HPC and smartphones have significantly decreased by platform, and sales to the United States have significantly decreased by region.

Based on this analysis, it can be said that the recovery in semiconductor demand for HPC and smartphones produced using leading 7nm and 5nm processes in the US market will promote TSMC's performance. However, with the decline in smartphone shipments, people have high hopes for a resurgence in demand for CPU and GPU in data center servers.

The rapid popularization of interactive artificial intelligence is being seen globally, such as the ChatGPT released by OpenAI in November 2022. This is also expected to accelerate the popularization of supercomputers and data centers. By producing advanced semiconductors, TSMC's performance will definitely become positive again.