Not long ago, TSMC released its financial report for the second quarter. The data shows that TSMC's net profit in the second quarter increased by 36% year-on-year, reaching NT$247.85 billion (equivalent to US$7.61 billion). Revenue in the second quarter grew by 40%, reaching NT$673.51 billion, with a 33% increase in revenue in June.
An important phenomenon in the financial report is that the proportion of HPC chips reached 52%, higher than the 46% in the first quarter, and for the first time exceeded 50%.
01
Leading the market and preparing for price increases, TSMC is set to make more money
Industry insiders say that TSMC, which holds a large number of HPC market product orders, will raise prices in the near future. In late July, TSMC sent notifications to several customers one after another, stating that due to the continuous rise in costs, the prices of 5nm and 3nm process products will be adjusted again from January 2025, with the increase ranging from 3% to 8% according to different factors such as wafer planning, products, and cooperation relationships. Currently, the utilization rate of TSMC's 3/5-nanometer processes is as high as 100%, and the related processes completely dominate the market. Under such circumstances, price increases are obviously more beneficial than detrimental to TSMC's operations.
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In June 2024, TSMC had already raised the prices of its 3-nanometer and 5-nanometer advanced process products, with AI products for 3nm and 5nm increasing by 5%-10%, and non-AI products by 0%-5%.
In addition to advanced processes, some insiders have also revealed that TSMC may have raised the price of CoWoS. CoWoS is a key technology for the current market demand for HBM products, and AI chips from AMD and Nvidia will use this technology. Although the specific numbers have not been disclosed, TSMC is rapidly expanding its CoWoS production line to meet market demand. Therefore, with strong demand and the need for expansion, "the cost is passed on to the consumers," and TSMC's price increase has become inevitable. Industry insiders have revealed that TSMC raised the price of advanced packaging by 15%-20% in June this year.
Considering that TSMC has almost no competitors and occupies an absolute advantageous position, with Samsung and others falling far behind TSMC in terms of yield or orders, major customers even seem to be "clapping their hands in approval" in the face of TSMC's price increase. Ren Xun said in an interview that the prices of TSMC's products and services were previously "too low." In addition to Nvidia, TSMC's major customers, such as Apple, Qualcomm, and AMD, have successively accepted the price increase plan. Faced with TSMC's absolute advantage, investment institutions also said that the price increase will make TSMC more profitable and more valuable.
TSMC's financial report shows that the revenue from high-performance computing business, including AI chips, increased by about 28% from the previous quarter, while the revenue from the smartphone business decreased by 1%. The smartphone field used to be the field with the highest sales for TSMC, but in the first quarter, HPC has surpassed the smartphone field. The share of the smartphone field decreased from 38% in the first quarter to 33% in the second quarter.At the performance briefing, TSMC (Taiwan Semiconductor Manufacturing Company) projected that its third-quarter revenue could reach between 22.4 billion and 23.2 billion US dollars, expressing confidence in the continued prosperity of AI (Artificial Intelligence).
Wall Street investment institutions have successively released reports to raise their target prices. Goldman Sachs increased TSMC's target price by 19%, predicting that the manufacturing costs of the company's 3-nanometer and 5-nanometer chips will rise by a "low single-digit percentage." In addition to raising TSMC's target price, the institutions also judged that TSMC may raise its revenue expectations for 2024.
Why can't TSMC's HPC (High-Performance Computing) be replaced?
The growth of high-performance computing chip revenue is closely related to the development of artificial intelligence (AI) and 5G applications. Interconnected devices, smart cars, virtual/augmented reality, and intelligent manufacturing require extensive data analysis. This has led to an unprecedented demand for computing power in cloud data centers and communication infrastructure. Video content and nearly a hundred billion interconnected devices have driven a huge increase in IP traffic. Wired and wireless connection speeds are becoming faster and faster to support market innovation.
In order to "make a big profit" in the field of high-performance computing, TSMC is also enriching the technical services provided to HPC customers, including: cutting-edge process technology, connection technology (RF technology, SerDes, and optical interconnection), TSMC 3D Fabric (3D silicon stacking and advanced packaging platform).
The first major move: cutting-edge process technology
As the most technologically advanced foundry at present, TSMC's advanced processes are naturally the most cutting-edge process technologies, including: N4 (N4, N4P, N4X), N5 (N5, N5P), N7/N6, SHDMiM.
The N4 process is an enhanced version of the 5nm (N5) technology, which began mass production in 2022. Among them, N4X is the first product of TSMC's "X" series of ultra-high-performance semiconductor technology, which is 6% faster than N4P, and is planned to be mass-produced in 2024.The N4, N4P, and N4X nodes are compatible with 5-nanometer technology in design rules, facilitating design migration. In Q2 2024, the 5nm node was TSMC's highest revenue-generating process node, accounting for 35% of revenue.
The N7+ node is TSMC's first EUV process to enter mass production; the N6 provides the same design rules, device models, and IP as the N7. The N6 and N7 use the same design flow and EDA tools. Designers can adopt the N6 process while maintaining the N7 solution. In the reticle tape-out (RTO) mode, the chip size is the same as the N7, and TSMC can improve chip yield by reducing the number of mask layers and simplifying the process.
TSMC has also developed an ultra-high-density metal-insulator-metal (SHDMiM) capacitor to address the challenge of on-chip capacitance density. As the performance/power consumption of high-performance devices continues to increase and operating voltage continues to decrease, power integrity and power distribution are becoming an increasingly larger part of the performance equation. Compared to the previous generation, SHDMiM provides up to four times the effective capacitance.
Second Axe: Data Transfer Technology
For HPC customers, data transfer has become a new challenge, so improving product connectivity performance is also important. To better meet customer needs, TSMC has adopted radio frequency technology, SerDes design, and optical interconnect technology.
To achieve faster cellular communication, 5G enables millimeter wave spectrum to accommodate wider signal bandwidth. This brings different technical challenges from below 6GHz base stations, so the requirements for 5G millimeter wave base stations are also different from those below 6GHz, leading to different technical requirements. TSMC's radio frequency technology supports both sub-6GHz and millimeter wave technologies for base station applications.
Key SerDes design specifications include link speed, power consumption per channel, and maximum tolerable channel loss. The continuous-time linear equalizer (CTLE) is a key circuit in high-speed SerDes design, and the related technology has been verified on the N5 chip, enabling operation at 112Gbps. TSMC's customers and third-party IP suppliers' 112Gbps SerDes IP are in production.
In terms of connectivity technology, TSMC is also laying out silicon photonics technology. Optical interconnects achieve high-speed, low-power data transfer, and silicon photonics technology is gaining market share through higher integration and robust materials. For future generations operating at higher data rates (>50Tbs), co-packaged optics (CPO) is expected to become a key solution. TSMC's N65 silicon photonics process technology has achieved mass production, and TSMC is also developing 3D stacking technology to combine silicon photonics technology with high-performance computing to meet CPO requirements. Its proprietary 3D stacked CPO technology can achieve high-speed, low-power data communication.
Third Axe: 3D Packaging Technology
As the process evolves, the importance of packaging is increasing. For HPC customers, TSMC achieves rapid upgrades and shortens time to market through advanced wafer technology, the Open Innovation Platform design ecosystem, and 3DFabric technology.Front-end 3D stacking technology (SoIC, System on Integrated Circuit), offers flexible chip-level chiplet design and integration. Back-end 3D stacking technology increases the packaging size, adds to the technical content of CoWoS (Chip on Wafer on Substrate), and accommodates more advanced nodes and high-bandwidth memory (HBM) by increasing the size of the interposer layer, to achieve higher computing power and bandwidth, meeting the specifications required by cloud, data centers, and high-end servers. InFO-related technologies, such as InFO-oS, also provide logic-to-logic integration solutions for specific applications targeting HPC (High Performance Computing).
With the assurance of the above three aspects, TSMC (Taiwan Semiconductor Manufacturing Company) has become an irreplaceable leader in the HPC foundry field. However, behind TSMC's dazzling performance in the HPC business, there is the shadow of a slowdown in the demand for smartphones.
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TSMC has raised prices. Will the iPhone be more expensive?
However, the ultimate payer for the price increase is likely to be the consumer. After all, when the HPC order increases, under the condition of limited production capacity, the production capacity of consumer products may also follow the price increase, and the most likely to be affected may be the mobile phone.
Looking at the global smartphone market, TSMC holds the manufacturing orders for all new smartphone chips of Apple and MediaTek, as well as a large number of orders from Qualcomm. Although MediaTek warned that the third-quarter sales will decrease by 3%-4% month-on-month, which means that the seasonal momentum will be weaker. Qualcomm pointed out that smartphone shipments are slowly recovering after a long period of stagnation, and the shipments in 2024 are expected to be flat or grow by a single-digit percentage. However, both MediaTek and Qualcomm have announced better-than-expected sales performance in the second quarter.
Industry insiders predict that by the end of 2024, the order volume of the upcoming iPhone devices will be comparable to the order volume of the iPhone 15 series in the same period of 2023. This means that there will be no significant increase in the shipments of the top three smartphone chip suppliers, which is consistent with TSMC's outlook on the smartphone market. The CEO of Largan Precision, a smartphone camera module supplier, Adam Lin, also revealed in July that although many customers are actually not so optimistic about sales in the second half of 2024, the order momentum in August will continue to rise.
In absolute terms, the revenue contribution of the smartphone chip business to TSMC in the first and second quarters has not decreased significantly. TSMC still expects the smartphone chip to provide considerable growth momentum in the second half of 2024.
It is worth looking forward to whether the iPhone to be released in September will be more expensive as a result.
04Conclusion
On August 8th, two major contract manufacturers in mainland China released their financial reports for the second quarter of 2024. SMIC (Semiconductor Manufacturing International Corporation) achieved sales revenue of $1.9 billion for the quarter, an increase of 8.6% compared to the previous quarter and a year-on-year growth of 21.8%; the net profit was $165 million, a decrease of 59% compared to the same period last year. SMIC predicts that the revenue for the third quarter of 2024 will grow by 13% to 15% compared to the previous quarter, with a gross margin ranging between 18% and 20%.
Hua Hong Semiconductor (HHGrace) announced its sales revenue for the second quarter of 2024 as $478.5 million, a year-on-year decrease of 24.2%; the net profit attributable to the parent company was $6.673 million, a decrease of 91.5% compared to the same period last year.
As the most advanced contract manufacturer, TSMC's (Taiwan Semiconductor Manufacturing Company) financial performance and guidance are important indicators of the global semiconductor market. While TSMC is thriving, it is not difficult to see that not all markets have recovered. The booming fire of AI is still burning, but when will the springtime of other industries arrive?
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