Many industry analysts expected TSMC’s second-quarter revenue to fall nearly 14% due to ongoing unfavorable market conditions. In fact, TSMC’s revenue fell 13.7% year over year to $15.68 billion, within the company’s own guidance, and revenue declined 6.2% sequentially. At the same time, it became known that the start of the company in Arizona has been postponed to 2025.
We’re talking about revenue in dollars, and in Taiwan local currency, the revenue decline was no more than 10% compared to the same period last year, and sequentially the revenue decline was limited to 5.5%. The company’s net income fell 23.3% in constant currency to $5.9 billion in the second quarter, the first decline since 2019. TSMC previously said it expected revenue for the second quarter to be between $15.2 billion and $16 billion, putting actual quarterly revenue a little closer to the high end of the range.
The rate of profit fell from 59.1% to 54.1% during the year. The operating profit margin decreased from 49.1% to 42%.
A decrease in the number of silicon wafers processed per quarter may indicate a decrease in demand for TSMC services compared to the “fat” 2022. In the second quarter, the company shipped no more than 2.92 million silicon wafers to customers, down 23.2% from the same quarter last year and down 9.6% from the first quarter of this year.
The revenue share from the sale of 5nm products reached 30% compared to 21% in the previous year. At the same time, the share of sales from the delivery of 7 nm products decreased. While it reached 30% a year ago, it has not exceeded 23% in the second quarter of this year. And yet, within a year, the share of advanced technical processes in TSMC’s sales rose from 51% to 53%.
We can say that the HPC segment in TSMC’s revenue structure was stable year-on-year, as its share already reached 44% in the first quarter of this year, it was the same in the second, but it was capped at 43% a year ago. At the same time, the smartphone segment continues to lose ground. While its share of TSMC’s revenue structure reached 38% in the second quarter of last year, it fell to 34% in the first quarter of this year and to 33% in the second quarter.
On the other hand, the automotive sector continues to grow, albeit at a modest pace (+3%), its share increasing from 5% to 8% over the year. Consumer electronics sales jumped 25% in the most recent quarter, but that only matched last year’s 3% growth across the company. Consequently, revenue in the HPC segment fell by 5%, in the smartphone segment by 9%, in the IoT segment by as much as 11%, with the latter case the share of core revenue being set at around 8% of total revenue.
Geographically, two-thirds of TSMC’s quarterly revenue came from North America, so the US government’s desire to open TSMC’s two state-of-the-art chip manufacturing facilities in Arizona is understandable. While China accounted for 15% of TSMC’s revenue in the first quarter, its share fell to 12% in the second, despite reaching 13% a year ago. Since last October, US sanctions on TSMC’s Chinese customers are having an impact on reducing local revenue, so this dynamic is not surprising. Over the year, the share of Asia-Pacific countries fell from 12% to 8%, while Europe, the Middle East and Africa countries remained stable at 7% compared to the first quarter, while their share was capped at 6% a year ago. Japan has grown from 5% to 7% for the year, but was already at current levels in TSMC’s revenue structure in the first quarter.
TSMC’s capital expenditures reached $18.1 billion in the first half, including $8.2 billion in the first quarter and $9.9 billion in the second quarter. For full-year 2023, the company expects to be limited to capex in the region of $32 billion, although it previously said $36 billion was the upper end of the range. According to management, the sluggish demand caused by customer overstocking should be more than offset.
For 2023 as a whole, there were also forecasts that reduced expected sales to a 10% lower level than in the previous year, although it was previously assumed that everything would be limited to a decline of a few percent. TSMC management urged investors not to get too excited about the boom in artificial intelligence systems, as it is not yet certain that the component demand growth it will generate will be sustainable and long-term. Accordingly, CEO Mark Liu said that TSMC cannot be sure that demand for components for AI systems will remain stable or grow.
Equally grim news was TSMC’s announcement that it would delay the start-up of the first of its Arizona facilities from 2024 to 2025. The company is making the necessary efforts to speed up the construction and installation of the equipment, and will send qualified personnel from Taiwan to the United States to carry out the necessary work.
All of the related news led to the stock price falling more than 3% in the run-up to the offering.