TSMC Posts a 19% Decline in Net Profit, but Edges Past Expectations

Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) witnessed an uptrend in premarket trading on Thursday, driven by positive sentiments surrounding the chip maker's latest financial results and forward-looking forecasts.

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In the fourth quarter, TSMC reported net income of 238.71 billion new Taiwan dollars ($7.6 billion), a decrease from NT$295.90 billion in the corresponding period the previous year. Analysts, polled by S&P Global Market Intelligence, had anticipated net income of NT$224.67 billion for the quarter ending December 31.

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The company's revenue, involved in manufacturing chips for major players like Apple and Nvidia, stood at NT$625.53 billion. Although this figure mirrored the company's previous report and remained relatively unchanged from the previous year, when converted to U.S. dollars, fourth-quarter revenue amounted to $19.62 billion. This marked a 1.5% decline year-over-year but represented a 13.6% increase from the previous quarter.

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The reported sales figure has instilled optimism in the market, hinting at a potential turnaround in the global chip market slump. TSMC's shares experienced a 1.2% rise in local trading, while its U.S.-listed shares soared by 5% in premarket trading. This positive momentum extended to U.S. chip companies, with Advanced Micro Devices Inc. (AMD) witnessing a more than 3% increase in its stock, and Nvidia Corp. (NVDA) recording a gain of over 2%.

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Wendell Huang, TSMC's Vice President and Chief Financial Officer, attributed the company's robust fourth-quarter performance to the successful adoption of its industry-leading 3-nanometer technology. Looking ahead to the first quarter of 2024, Huang acknowledged potential impacts from smartphone seasonality but highlighted offsetting factors, such as sustained high-performance computing demand.

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In terms of financial metrics for the fourth quarter, TSMC reported a gross margin of 53%, an operating margin of 41.6%, and a net profit margin of 38.2%. The company offered first-quarter guidance, projecting revenue in the range of $18 billion to $18.8 billion, a gross profit margin between 52% and 54%, and an operating profit margin between 40% and 42%. The provided revenue guidance aligns closely with the FactSet consensus of $18.3 billion for the first quarter.

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Analysts from JPMorgan, led by Sandeep Deshpande, expressed positive sentiments regarding TSMC's guidance, noting that revenue outlook exceeded market expectations, and capital expenditure guidance was in line with forecasts. TSMC outlined a capital budget ranging between US$28 billion and US$32 billion.

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However, there were indications from TSMC's Chairman, Mark Liu, that production might face delays at the company's second chip plant in Arizona, a substantial $40 billion project. Additionally, the specific type of chip to be produced at this facility was not finalized. The opening of the first Arizona plant had already experienced delays. Furthermore, TSMC is set to inaugurate its Japan Kyushu fab in February and initiate the construction of its German fab in the fourth quarter of this year, focusing on auto and industrial chips, as highlighted by JPMorgan analysts.

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