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Although net profit in the third quarter hit a two-year high, TSMC (TPE: 2330/NYSE: TSM) once again lowered its capital expenditure for the whole year of 2022.
On the afternoon of October 13, TSMC confirmed at the legal person briefing that it would cut capital expenditure by 10% to about US$36 billion in 2022.
This is the second time this year that TSMC has lowered its annual capital expenditure. Earlier in July, TSMC said that this year's capital expenditure may fall at the original low of $40-44 billion.
TSMC Chief Financial Officer Huang Renzhao explained that the annual capital expenditure is based on expectations for growth in the next few years. The further reduction of capital expenditure is due to the current medium-term outlook for capacity optimization, and the second is that the challenges of equipment delivery continue to be severe.
However, capital expenditure of around $36 billion will still be higher than last year's $30 billion. It is reported that of this year's capital expenditure, 70%-80% is used for advanced process technology, 10% is used for mass production of advanced packaging, and 10%-20% is used for special processes.
Regarding next year's capital expenditure plan, Huang Renzhao said, "We will continue to manage our business carefully and carefully, adjust and tighten our capital expenditures at the appropriate time, and invest in long-term structural market demand," and revealed that we will provide specific guidance in January next year.
TSMC's third-quarter financial results released on the same day showed that TSMC achieved revenue of NT$613.14 billion (approximately RMB 138.263 billion), a year-on-year increase of 47.9% and a month-on-month increase of 14.8%; net profit was NT$280.87 billion (approximately RMB 63.336 billion), a year-on-year increase of 79.7% and a month-on-month increase of 18.5%.
It is worth noting that North America is TSMC's largest market, with revenue contribution exceeding 70% in the third quarter. Therefore, the rise in the US dollar exchange rate and the depreciation of the New Taiwan dollar in the third quarter have driven TSMC's performance in the New Taiwan dollar to a certain extent.
From the perspective of various product types, the smartphone business, which has long been the pillar, accounts for 41% of revenue, a year-on-year decrease of 3 percentage points and a month-on-month increase of 3 percentage points; the revenue of high-performance computing business (HPC) accounts for 39%, a year-on-year increase of 2 percentage points and a month-on-month decrease of 4 percentage points; the revenue of the Internet of Things business (IoT) accounts for 10%, a year-on-month increase of 1 percentage point and two percentage points respectively; the proportion of automobile business accounts for 5% of revenue, the same as in the second quarter, and an increase of 1 percentage point compared with the third quarter of last year.
IoT business is also the business line with the fastest month-on-month growth rate in the third quarter, at 33%; the smartphone business has the second month-on-month growth rate, at 25%; the automobile business has a 15% month-on-month growth rate, ranking third.
TSMC President Wei Zhejia said that the company has observed the continued weakness of the consumer electronics market, but the terminal markets such as high-performance computing business (HPC) and automobile-related have remained stable. However, he also said, "I noticed that there is a possibility of adjustment in these application fields in the future."
From the perspective of technical nodes, in the third quarter, the 5nm process contributed 28% of TSMC's revenue, an increase of 10 percentage points year-on-year and 7 percentage points month-on-month; the 7nm process accounts for 26% of revenue, a decrease of 8 percentage points and 4 percentage points month-on-month respectively. The proportion of
5nm process shipments exceeds 7nm process for the first time. Wei Zhejia said that due to the decline in demand for some customers such as mobile phones and PCs, the 7nm and 6nm process films were delayed in the fourth quarter, and the capacity utilization rate is expected to take several quarters to return to the past level, and the impact is expected to continue until the first half of 2023. Wei Zhejia said that this is due to periodic influence, not structural changes in demand. Overall, the total proportion of advanced processes under 7nm and below in revenue increased to 54%, driving gross profit margin to exceed 60% for the first time in the third quarter, reaching 60.4%, an increase of 1.3 percentage points from the second quarter.
Huang Renzhao said that although we need to cope with the pressure of rising costs next year, we are confident that we can achieve a long-term gross profit margin of 53% or even higher."
It revealed that the progress of the 3nm process meets expectations and will be mass-produced later in the third quarter and will be produced at full capacity next year. 3nm's contribution to revenue will be higher than 5nm, and it is expected to account for about 4-6% of revenue next year; the 2nm process "will be mass-produced in 2025" according to the progress.In terms of semiconductor inventory, TSMC President Wei Zhejia said that customers and supply chains continue to adjust their inventory, and the inventory level is expected to peak in the third quarter of this year and start cooling in the fourth quarter. It will take several quarters to digest inventory and return to a healthy level by the second half of next year.
The impact of industrial inventory adjustment continues, and TSMC also feels that customer demand forecasts are becoming more cautious. Wei Zhejia said that the possibility of a downgrade in the future is not ruled out. According to TSMC's latest guidance, revenue in the fourth quarter was between US$19.9 billion and US$20.7 billion, and gross profit margin was between 59.5% and 61.5%.
Wei Zhejia continued the previous judgment that "the industry has entered a downward cycle" in July. It said that the semiconductor industry may decline in 2023 and TSMC will not be spared, but TSMC's business is more flexible, so 2023 will still be a year of growth for TSMC.
In response to the recent rumors that TSMC is considering setting up a factory in Germany, Wei Zhejia also responded that it will continue to increase the proportion of overseas production based on customer needs and operational efficiency. As for whether to set up a factory locally, customer needs, business opportunities, overall economy, etc. need to be evaluated.
