Taiwan Semiconductor Manufacturing (TSMC), the world's largest third-party chip manufacturer, reported a decline in sales for December. However, the company exceeded expectations for the overall quarter. The demand for artificial intelligence (AI) chips is expected to drive a recovery in demand moving forward.
December Sales Decline, But Positive Performance for the Quarter
TSMC announced on Wednesday that its revenue for December dropped 8.4% compared to the same period the previous year and declined 14% from November.
Although the monthly decline seems significant, the revenue for the December quarter remained relatively stable compared to the prior year. This better-than-expected performance suggests a potential recovery in chip demand as we enter 2024.
TSMC's monthly reports reveal that its quarterly sales amounted to 625.5 billion Taiwanese dollars, approximately $20.1 billion. Analysts had forecasted quarterly sales of 615.8 billion Taiwanese dollars, according to a FactSet poll.
TSMC's Key Position in the Chip Industry
TSMC plays a vital role in manufacturing main processors for Apple iPhones, Qualcomm mobile chipsets, and Advanced Micro Devices processors. Moreover, the company is a leading producer of AI chips for Nvidia, a dominant player in the graphics processing unit (GPU) market used for AI applications.
Although TSMC stands to benefit from the AI boom, AI chips constitute only a small part of its business. As a result, the slower demand for consumer electronics has had a negative impact on overall sales in Taiwan, which dropped 4.5% in 2023 compared to the previous year.
Addressing Demand for AI Chips
Both TSMC and its customer Nvidia have faced challenges in meeting the demand for AI chips. In response, TSMC management has confirmed plans to double its capacity of CoWoS (chip-packaging technology) by the end of 2024. This increase in capacity is necessary to meet the production needs of Nvidia's highest-performing AI chips.
Market Response
In premarket trading, American depositary receipts of TSMC remained relatively stable. Nvidia shares saw a 1.1% increase, while Apple and other TSMC-supplied companies, Qualcomm and AMD, experienced minor gains.
