Author | Wang Gangge
On the afternoon of January 13, TSMC released its financial results for the fourth quarter of fiscal 2021 as of December 31. Thanks to the market's continued "lack of cores", the chip foundry giant has reached a new high in revenue and obtained profits that exceed expectations.
The core financial report data is as follows:
New revenue: TSMC's revenue reached $15.74 billion in the fourth quarter, and its quarterly revenue reached a new high. Volume and price rose together: TSMC's wafer shipments in the fourth quarter were 37,000 pieces, an increase of 2.2% sequentially; TSMC's average wafer shipment price (equivalent to 12-inch pieces) in the fourth quarter was $4,226 per piece, an increase of 3.5% sequentially; profit exceeded expectations: TSMC achieved a gross profit of $8.29 billion in the fourth quarter, an increase of 8.6% sequentially. Net profit reached a record $6.011 billion, up 16.4% year-over-year. Gross margin for the quarter was 52.7%, operating margin was 41.7% and net profit margin was 37.9%. TSMC also issued new performance guidance: expected revenue of $16.6-17.2 billion (market expectation of $15.8 billion) and gross margin of 53-55% (market expectation of 51.8%) for the first quarter of 2022.
Source: TSMC
The reason why TSMC has achieved such strong growth is mainly due to the continuous strong demand for chips in the market and two specific angles:
On the one hand, the cost of raw materials is stable. Previously, TSMC's other manufacturing expenses increased from $743/piece to $934/piece, and the manufacturing cost formed a certain profit pressure. In the fourth quarter, TSMC's other manufacturing expenses fell for the first time in the year, and the follow-up may continue to help the company's gross profit level further improve.
On the other hand is the driver of the new iPhone. Revenue for the quarter increased 5.8% sequentially, driven by higher shipments of 5nm chips after the release of new models for major customers in the U.S. market. This also transmitted to the increase in the shipping price - because most of TSMC's revenue comes from 12-inch wafers, and half of the revenue comes from advanced processes, iPhone 13 series mobile phones increased the proportion of TSMC's 5nm process, further increasing the company's gross profit margin.
TSMC Revenue Contribution Classification for the Fourth Quarter of 2021 Source: TSMC
TSMC's shipments continued to grow during the quarter, while the company raised quarterly capital expenditures to $8.46 billion. The continued expansion of production capacity reflects TSMC's confidence in the strong demand for wafers. Wei Zhejia, president of TSMC, also expects that production capacity will remain tight in 2022. Therefore, in 2022, TSMC will usher in another year of growth.
According to Taiwan's Economic Daily, chaowei, apple, huida, Qualcomm and dozens of other customers in order to ensure that the follow-up shipment is safe, have paid TSMC in advance to reserve production capacity, a total of TSMC will be able to obtain more than 150 billion NT dollar advance payment this year, not only the annual revenue is expected to continue to rush to a new high, but also will strive to fight for no off-season throughout the year. According to a report by market analyst Susquehanna Financial Group, TSMC's delivery time in December last year increased by 6 days month-on-month to about 25.8 weeks. It also set the highest record the agency has tracked that data since 2017.
However, the market is not without concerns about TSMC's good performance, and the concerns are mainly focused on the side effects of the current rapid expansion - cash flow and future idle capacity.
In the past two years, due to the sharp increase in demand for chips, TSMC's capacity expansion and development have been very aggressive (of course, Intel and Samsung are equally radical). In order to ensure the increase in production capacity, the related expenditures have also been significantly increased, especially in advanced processes.
Just recently, TSMC officially proposed a 2nm and subsequent 1nm factory expansion plan, which is expected to total investment of up to NT$800 billion to NT$1 trillion (about 184-230 billion yuan), covering an area of nearly 1 million square meters.
Not only the construction of the factory, but also in the process update, TSMC has also accelerated its pace. TSMC has begun to promote 4nm and 3nm process research and development. In September this year, the A15 of the iPhone 13 used the second generation of TSMC's 5nm process, and next year's iPhone 14 is likely to use a 4nm chip. The 4nm process, which was originally only trial-produced in the fourth quarter of this year, was advanced by one quarter, and they also announced that they would mass-produce the 3nm process in the fourth quarter of 2022 and start mass production of 2nm process chips in 2024. Wei Zhejia said 3nm customers were "more than expected".
But it has to be admitted that behind these expansions is a sharp rise in the demand for funds, which has really brought pressure. TSMC's capital expenditure was approximately $30 billion in 2021, compared to $14.9 billion in 2019. On the conference call, TSMC said it would spend $40 billion to $44 billion on capital expenditures in 2022 to expand and upgrade capacity, an increase of more than $10 billion from last year.
At the same time, TSMC is also facing the pressure of the US turmoil, Intel's return to foundry business, and the construction of fabs in various places.
TSMC Cash Flow Source: TSMC
Looking at the macro level, the semiconductor industry is affected by three cycles: the Jugla cycle (the global capital expenditure cycle), the innovation cycle, and the inventory cycle.
At present, the upstream and downstream of global semiconductors are in a state of shortage, and the entire industry is actively replenishing inventory, driving the demand for the entire industry to increase, which will bring about the rise in the price of semiconductor commodities, resulting in semiconductor companies such as TSMC, Samsung, and Huahong Semiconductor will enjoy the inventory cycle dividend of this round of volume and price increases.
At the same time, the world is in a new round of innovation cycle nodes, algorithms, networks, computing power has been further improved, chip architecture, communication technology and OS have new technologies appeared, such as 5G mobile phones, new energy vehicles, photovoltaics, energy innovation are based on semiconductors, so its demand will be further increased.
However, it must also be noted that as the shortage of chips gradually eases and the supply side improves, the stage of the "cycle" will also change one after another. According to a recent report by IDC, the global chip market is expected to normalize and balance by mid-2022, with possible overcapacity in 2023. Semiconductor Intelligence, a consulting firm specializing in chips, also predicts that the global chip industry could see a decline starting in 2023.
An analyst at a leading brokerage firm told "True Detective": "2022 will be less lacking in cores, especially mobile phones, PCs, TVs, to inventory correction." Renesas Electronics CEO Toshibata warned the industry to find out how many orders are "double orders" or even "phantom orders", and some of the boom is exaggerated.
At the beginning of 2009, TSMC's stock price was less than $5, and now TSMC's stock price has exceeded $100, with a total market value of more than $600 billion. In 2022, all kinds of pressures and changes are coming, can TSMC still win the cycle?