Following the news that TSMC reported solid Q1 2023 results; Josep Bori, Thematic Research Director at GlobalData, offered his view:
“TSMC’s Q1 2023 results were mixed due to a significant deceleration since last December due to cyclical headwinds. Despite the Q2 guidance implying a revenue decline of 11% year over year, its long-term outlook looks bright, thanks to its dominance of advanced nodes as it navigates the US/China trade dispute.
“Q1 revenue growth of 4% year-on-year (YoY) is dramatically lower than the 43% growth in Q4 but much better than the recent negative double-digit declines of Nvidia, Micron, and Kioxia. The decline was expected due to softening consumer demand and headcount reductions across the tech industry. However, its relative resilience versus industry peers is a testament to TSMC’s technology leadership and strategic positioning in the global semis supply chain.
“Despite management warnings of end-market demand softness and customers’ ongoing inventory adjustments, the company remains structurally very well positioned. Its advanced technologies (i.e., five and seven-nanometer nodes) accounted for 51% of total wafer revenue, stable from last quarter. This manufacturing technology leadership places TSMC front and center of any country’s artificial intelligence (AI) strategy, as advanced AI chips require this miniaturization level.
“However, the long-term investment case hinges on the delicate balancing act between geographic diversification and geopolitical relevance. For TSMC, geographically diversifying its fabrication facilities makes sense from an operational risk-management perspective, but from a geopolitical standpoint, it cannot be taken too far. Diversifying geographically will make its main Taiwan facilities less critical from a global supply chain standpoint and, therefore, less crucial for the US to defend if China makes any moves on the island. Yet, the reduction in capex along with the recent commitments to build fabs in the US and advanced plans for Europe sites suggest this diversification will only accelerate.
“As demonstrated by the rise in geopolitical tension between the US and China, the US export ban on chip technology transcends the semiconductor industry. In GlobalData’s view, this is about AI dominance, which underpins what many call the fifth industrial revolution, and, ultimately, about global economic leadership in the next few decades.
“GlobalData predicts that the accelerating adoption of AI in commercial and military use cases will drive global AI chips revenue from $12 billion in 2021 to $130 billion by 2030, at a compound annual growth rate (CAGR) of 30%. For a more detailed analysis of this industry, see our recent ‘AI Chips’ report.”