Taiwan Semiconductor (TSMC), the world's largest semiconductor manufacturer, controls 62 per cent of the Market and more than 90 per cent of production of advanced chips of 7nm and smaller. It is also a major supplier to AI giants such as Apple, Nvidia and AMD. These chips are key to modern technology, especially in the development of artificial intelligence. The company published its Q3 financial results, which exceeded the expectations of analysts and the company itself. Let's take a closer look at the conclusions of this report.
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AI development accelerates
TSMC, with its strong position, reported a 39 per cent year-on-year increase in sales and a 54.2 per cent year-on-year increase in net profit. The main driver of this growth was the development of the artificial intelligence and smartphone sectors, which require more specialised chips sold at higher margins. This increased the operating profit margin to 47.8 per cent from 41.5 per cent a year earlier. The company maintains low debt levels - debt represents only 16 per cent of assets - and uses capital efficiently, achieving a 33.4 per cent return on equity (ROE).
Source: TSMC quarterly report
TSMC's Q3 revenue increased by 12.8 per cent q/q, driven by demand for smartphones and AI technologies, especially 3 nm and 5 nm. 3nm technologies accounted for 20 per cent of revenue, 5nm for 32 per cent and 7nm for 17 per cent. Advanced technologies (7nm and below) generated 69 per cent of revenue. Data centres (HPC) and smartphones accounted for 51 per cent and 34 per cent of revenue. Geographically, 71 per cent of revenue came from North America and 11 per cent from China. Here it is also worth mentioning that China's growth in AI technology is significantly blocked by the US. This is exemplified by the latest quarterly report from the manufacturer of lithography machines, which are essential in the ASML semiconductor manufacturing process. China has a sales share of as much as 47 per cent in this segment. However, due to US export restrictions on advanced technology, this share is set to fall to 20 per cent in 2025. This news has triggered a sell-off in the Dutch manufacturer's shares, which have already fallen by 38 per cent from their peaks.
Source: Conotoxia MT5, ASML-NL, Daily
Tough situation for TSMC's competitors
At present, TSMC appears to be unrivalled in the production of the most advanced chips (7 nm and below). So far, concerns about increasing competition have mainly come from China and Intel. However, China's technology constraints and Intel's severe financial problems mean that TSMC remains even more dominant, giving it a technological edge over its competitors for the next 5 years or so. For this reason, TSMC shares are up almost 10 per cent in pre-market trading.
Source: Tradingview
Grzegorz Dróżdż, CIIA, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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