The Taiwan Semiconductor Manufacturing Company (TSMC) has reported its July revenue figures, which mark a monthly growth but fall annually. Except for the bumper year for the chip segment, which was 2022, TSMC's revenue has typically fallen between June and July, indicating that this time around, some additional factors at play have contributed to revenue growth even as the semiconductor industry waits for inventory digestion before ramping up product manufacturing and shipments. TSMC reported NT$177 billion in revenue for July, a roughly NT$9 billion drop over the year-ago figures but a sizeable NT$21 billion growth over the June figures.
TSMC's July Revenue Shows That Artificial Intelligence and 3nm Product Demand Might Be Lifting Company's Top Line
2023 is an expensive year for TSMC since it will be the first full year when the company mass produces its latest chipmaking technology. Dubbed N3, this family of chips is marketed as featuring some circuits that measure 3 nanometers, and as is the case with nearly every high-end chip technology from TSMC, the first batch of products typically go to Apple.
Manufacturing chip products with new technology requires capitalizing high initial expenditures, which affects TSMC's gross margin for the initial phases of mass production. However, this year, the firm is also facing a slowing market that might take longer than expected to resolve, according to statements made by its executives during TSMC's latest earnings call. A slowing market hampers TSMC's revenue growth, and this year, the drop in sales comes just as the Taiwanese fab is ramping up its latest chip manufacturing technology.
TSMC reported NT$156 billion in revenue during June. This had marked an 11% annual and sequential drop and given way to hope that perhaps June was the last month for poor revenue performance. However, right around the time the Taiwanese fab released its revenue figures for June, investment bank Goldman Sachs came out with a fresh analyst note that raised TSMC's share price target by 14% to NT$700. In its rationale for the decision, the bank cited expectations of higher profits over the next couple of years and a larger capital expenditure as demand restorers after market recovery.
TSMC's latest revenue data shows that the firm raked in NT$177 billion in revenue during August. While it marked a 4.8% annual drop, the quarterly or sequential growth was much better as the revenue grew by 11%. Compare this with TSMC's revenue performance during July 2022, July 2021 and July 2020 to understand how recent trends might affect the firm's performance.
For its July revenue in 2020, 2021and 2022, TSMC had reported NT$105 billion, NT$124 billion and NT$186 billion in net sales, respectively. Annually, all these were in positive growth territory, with the growth rates being 25%, 18% and 50% each. However, sequentially, the revenue had dropped over the previous month in July 2020 and 2021, with the negative growth being the highest in the latter when it had stood at -16%.
This time, the trend seems different, as TSMC's revenue grew by 14% in July over June. There is some speculation behind this historical divergence, with the leading candidates being a growth in orders for artificial intelligence products and fresh shipments of 3-nanometer chips. TSMC is the world's leading contract chip manufacturer - a role that places it right at the heart of any new or existing AI products that might make their way into the market.
However, the firm has refrained from commenting on whether AI will provide a long-term growth trend, as it prefers to wait and watch before making any strong pronouncements. The biggest beneficiary of the AI boom is NVIDIA Corporation, whose management should share updates, particularly for AI, in its upcoming quarterly earnings call later this month.
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