AI to drive strong chip market growth in 2024, says TSMC

Business news | January 19, 2024

By Peter Clarke

Foundry chip maker TSMC said that a surge of customer interest in artificial intelligence (AI) in 2023 will result in strong chip demand in 2024 with the AI compound annual growth rate running at 50 percent.

This view was given by CC Wei, CEO of TSMC, in a conference call to discuss TSMC’s 2023 financial results and the outlook for 2024. It is a slightly more bullish point of view than that of Malcolm Penn of Future Horizons (see TSMC reports a rare year of sales contraction).

In the conference call Wei acknowledged that in 2023 the industry and TSMC had suffered a steep inventory correction (see TSMC reports a rare year of sales contraction). But the low base of 2023 and improvements in high-performance computing (including AI) and smartphone would lift the market in 2024, he said.

“We forecast the overall semiconductor market excluding memory to increase by more than 10 percent year-over-year, while foundry industry growth is forecast to be approximately 20 percent. For TSMC, supported by our technology leadership and broader customer base, we are confident to outperform the foundry industry growth. We expect our business to grow quarter-over-quarter throughout 2024, and our full year revenue is expected to increase by low to mid-20 percent in US dollar terms,” said Wei.

In 2023 HPC and smartphone were responsible for 43 and 38 percent of TSMC’s revenue respectively. The fact that HPC for TSMC was a flat year and smartphone revenue was down 8 percent contributed to TSMC’s low growth year.

Wei said that just about all AI chips so far have been made by TSMC and that AI requires leading edge manufacturing processes such as the 3nm and 2nm processes that the foundry is introducing. He said that AI chips’ compound annual growth rate is about 50 percent and that by 2027 TSMC expects to be getting nearly one-fifth of its revenue – high teens of percent – from a narrowly-defined AI application processor, but this would also boost other fields such as networking and smartphones.

“actually, all the edge device, including smartphone, including the PC, they start to put the AI’s application inside. They have some kind of a neural processor, for example, so the silicon content will be greatly increased. Although the [equipment unit growth] is actually low single digit in CAGR, the silicon content is more important.” He added: “If we lump all the AI-related application, actually, it’s quite a big amount for TSMC to grow.”

TSMC revenue and growth by market sector in 2023. Source: TSMC.

In 2023 TSMC made an income before tax of NT$979.17 billion (about US$31.2 billion) on consolidated revenue of NT$2,161.74 billion (about US$68.9 billion). Revenue declined on an annual basis by 4.5 percent in Taiwanese dollars and down 8.7 percent in US dollars. Income before tax was down 14.4 percent.

TSMC revenue by manufacturing process technology in 2022 and 2023. Source: TSMC.

In the fourth quarter, shipments of 3nm accounted for 15 percent of total wafer revenue; 5nm accounted for 35 percent; 7nm accounted for 17 percent. Thus advanced technologies, defined as 7nm and more advanced, accounted for 67 percent of total wafer revenue.

“Our fourth quarter business was supported by the continued strong ramp of our industry-leading 3nm technology,” said Wendell Huang, VP and Chief Financial Officer of TSMC. “Moving into 1H24, we expect our business to be impacted by smartphone seasonality, partially offset by continued HPC-related demand.”

The company forecast that 1Q24 revenue would be between US$18.0 billion and US$18.8 billion.

The company said that capital expenditure in 2024 would be between US$28 billion and
US$32 billion. At the midpoint this is essentially flat with the capex in 2023 of US$30.4 billion.