The author is an analyst at NH Investment & Securities. He can be reached at [email protected] — Ed.

Despite the economic downturn, TSMC announced strong 3Q22 results and guidance for 4Q22. Customer demand for advanced node semiconductors continues to rise amid the need to improve performance and reduce soaring power costs.

3Q22 review: earnings exceed consensus

TSMC reported strong 3Q22 results and 4Q22 guidance, posting sales of NT$613.1bn (+15%qq, +48%yy), OP of NT$310.3bn (+18%qq , +82% yy) and NP of NT$281bn (+19% qq, +80% yy). OP exceeded consensus by 5%. These robust results were driven by smartphones, which accounted for 41% of total sales (vs. 38% in 2Q22). With the release of Apple’s iPhone 14, the company benefited from strong demand for 5nm processors for use in smartphones. Favorable foreign exchange market conditions and cost improvement efforts were also positive.

A temporary increase in high-performance computing (HPC) customer orders to prepare for US regulations against China also contributed to the strong results. TSMC said that despite the economic downturn, demand continues to climb for both 5nm processors for use in smartphones and for HPC processes. On the other hand, TSMC noted that demand for devices using 6-7nm processors is slowing and issues such as inventory adjustments at customers remain in play. But, after peaking in 3Q22 , inventory adjustment activity is expected to decrease compared to 1Q23.

Offers healthy forecast for 4Q22 but reduces capex forecast

TSMC released a 4Q22 sales forecast of $19.9 billion to $20.7 billion, 4% above the median consensus, indicating that favorable exchange rates and demand for Apple and HPC applications for the 5nm process should continue in 4Q22. TSMC’s investment forecast for 2022, which is attracting attention from the equipment industry, has been revised down from $40 billion to $36 billion in anticipation of further economic downturn and delays in the storage of equipment. Such a development does not bode well for the semiconductor equipment industry.

However, even within the current downward economic trend, TSMC’s relative dominance is likely to continue. There is a growing demand for advanced node processes to improve customer product performance and reduce soaring energy demands. We believe that mass production in 3nm has now begun and the associated yields are solid. In 2023, the share of 3nm-related sales (annual basis) at TSMC is expected to reach the average figures (%). At TSMC, the overall ASP is expected to continue to increase next year.

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