Revenue for Taiwan Semiconductor Manufacturing Co. (TSMC) topped analysts' estimates in the third quarter and reached $19.4 billion. On Friday, the company reported that earnings in Q3 2022 were 48% higher compared to the same quarter a year ago.
TSMC revenue in July (NT$186.76 billion), August (NT$218.13 billion), and September (NT$208.25 billion) totaled NT$613.14 billion ($19.382 billion), which is about 48% higher than in Q3 2021, according to a Bloomberg report. TSMC's results run contrary to other semiconductor companies. Just yesterday, AMD warned of a $1.1 billion revenue shortfall, whereas Kioxia decided to reduce the output of 3D NAND wafers last week.
There are several reasons why TSMC's results are improving while sales of its partners' products are dropping due to rising inflation and geopolitical tensions. First up, TSMC has managed to increase its market share in recent years, particularly when it comes to leading-edge nodes. Secondly, since the company leads other contract makers of chips, it can increase prices, which drives its revenue upwards.
The third quarter of 2022 was particularly good for TSMC as the contract maker of chips ramped up production of multiple high-profile products from its top customers. In particular, TSMC ramped up production of AMD's latest Zen 4-based processors for desktops and servers and presumably started making the company's next-generation GPUs featuring the RDNA 3 architecture. Also, the foundry increased production of Apple's M2 system-on-chips for PCs as well as A15 Bionic and A16 Bionic SoCs for smartphones. Finally, TSMC started making Nvidia's Ada Lovelace graphics processors, and Hopper GH100 compute GPUs. All of these products use leading-edge nodes (N4, N5, 4N, etc.) that are pretty expensive, which explains how TSMC managed to boost its earnings while demand for consumer chips is getting lower.
But while TSMC now controls a bigger portion of the market than it used to just a couple of years ago, the company's capitalization fell 29% this year as investors worry about potential revenue drop in the coming months as fabless chip designers slash their orders due to dropping demand, Bloomberg reports.
Another factor that increases investors' concerns about TSMC is the company's investments in new capacities in Taiwan and overseas (the U.S. and Japan). Analysts from Morgan Stanley believe that demand for chips will increase again in the second half of 2023. This is before TSMC's new production capacity comes online, but investors are still worried about the company's margins.
"For now, overseas capacity expansion will be front and center, especially in the U.S. and Japan, as TSMC pushes to meet customers' diversification requests and rises to the challenge of growing competition from Samsung and Intel," wrote Charles Shum, an analyst with Bloomberg Intelligence, in a note to clients. "Rapidly rising depreciation and material costs, coupled with increasing uncertainty in smartphone demand, are putting a cap on its gross margin."