TSMC Q4 profit falls 19% but beats estimates; Sees support from AI demand

Investing.com-- Taiwan Semiconductor Manufacturing Co (TW:2330) (NYSE:TSM) logged a smaller-than-expected decline in its fourth-quarter profit as revenue was buoyed by increased sales of its most advanced chips.

The world’s largest contract chipmaker forecast slightly weaker performance in the first quarter of 2024, but said that chip demand in the coming year will be supported by strong demand for artificial intelligence.

"We expect 2024 to be a healthy growth year for TSMC, supported by... robust AI-related demand. AI models need to be supported by more powerful semiconductor hardware... thus the value of TSMC's technology position is increasing," CEO C.C. Wei said in a post-earnings call.

Profit for the three months to December 31 fell to T$238.7 billion ($7.6 billion) from T$295.9 billion a year ago. On a per-share basis, profit fell to T$9.21, but still beat Investing.com estimates of T$8.67.

Revenue was T$625.5 billion ($20 billion), remaining largely unchanged from the prior year, but beating estimates for a reading of T$617.24 billion. The figure was also above TSMC’s forecast for the year.

Revenue improved from the prior quarter on improved demand for its 3 nanometer chips, which TSMC describes as the industry’s most advanced semiconductor technology.

TSMC said it expects sales in the first quarter to range between $18 billion and $18.8 billion, with a gross margin of 52% to 54%. Its gross margin for the fourth quarter was 53%.

The firm also forecast slightly higher capital expenditure for 2024, between $28 billion to $32 billion, compared to about $30.1 billion in 2023. A bulk of this expenditure will be dedicated towards high-computing chips, CEO Wei said.

Demand for high-performance computing chips improved in the fourth quarter, likely boosted by increasing interest in artificial intelligence development. The launch of OpenAI’s Chat GPT bot in late-2022 had triggered a widespread rush into the development and application of similar AI products.

AI development uses a large amount of computing power, which in turn requires more advanced, higher-power silicone. This also spells higher demand for TSMC.

Analysts had expected an improvement in TSMCs earnings amid dwindling inventory levels among PC and smartphone manufacturers. This also helped shore up chip demand from a lull caused by weak electronics demand, easing technology investment and high interest rates.

TSMC is a key supplier to tech majors Apple Inc (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA), the latter of which has benefited greatly from increased demand for AI chips. Nvidia had recently unveiled a new line of chips dedicated solely towards AI development.

TSMC’s earnings have now beaten estimates for all four quarters of 2023, which, coupled with the prospect of improving chip demand, saw the firm’s Taiwan stock rally over 30% in the past year.

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