Taiwan Semi (TSM, Financial) not only outperformed Q1 top and bottom-line expectations but also forecasted Q2 revenues above consensus, while maintaining its FY24 revenue and CapEx targets. As the leading chip manufacturer for giants like NVIDIA (NVDA, Financial) and Advanced Micro (AMD, Financial), TSM's initial results seem promising. Yet, a deeper dive reveals a more complex scenario.
Despite AI driving significant gains for TSM, the company notes a slower-than-anticipated recovery across the semiconductor market. This slowdown is not limited to the smartphone sector, which traditionally dips around this time. TSM highlights a broader industry weakness, including lukewarm server demand, sluggish IoT and consumer demand, and an oversupplied automotive sector, which experienced the most significant decline since Q4.
Consequently, TSM has adjusted its FY24 semiconductor market growth forecast (excluding memory) to about 10% year-over-year, down from its previous expectation of over 10%. The foundry industry's growth projection has also been revised to mid-teens from around +20%.
While TSM reaffirms its FY24 CapEx guidance of $28-32 billion, it notes a plateau in CapEx growth, expecting it to remain in the mid-30s for the upcoming years. This marks a shift from the pandemic years' $40 billion CapEx, indicating a cautious outlook on growth.
- Despite the surge in AI demand, it's not compensating for the broader semiconductor industry's downturn.
AI remains a key growth driver for TSM, projected to more than double server AI revenues this year, contributing to a low teens percentage of total revenue. TSM maintains its FY24 sales growth forecast of low to mid +20%. Over the next five years, AI is expected to grow at a 50% CAGR, making up over a fifth of TSM's revenue by 2028. To leverage this growth, TSM is expanding its manufacturing capabilities globally, including three fabs in Arizona and additional facilities in Japan and Germany.
However, the broader semiconductor industry's downturn raises concerns. The last time TSM issued a similar warning was in October, preceding disappointing results from many tech companies. TSM's Q1 report may serve as an early indicator of challenges, particularly for companies with limited exposure to AI.
