Amidst turmoil in the semiconductor market that has seen chip manufacturers and designers fend off lower orders, a New Street Research analyst believes that the Taiwan Semiconductor Manufacturing Company (TSMC) has a bright future ahead. TSMC, like its peers further downstream in the semiconductor supply chain, had performed well in the aftermath of the coronavirus pandemic due to booming demand for computing products. However, all of them have battled low demand and dropping orders for more than a year now as consumers digest inventory and inflation gradually ticks to normal levels.
These headwinds in the sector have forced TSMC to cut down its revenue guidance twice this year, and despite rumors of another cut that the firm has denied, analyst Pierre Ferragu believes that the firm can bring in as much as $100 billion in revenue in 2025.
TSMC's Top Customers Well Poised To Enable Revenue Growth, Says Analyst
Out of all chip firms, TSMC's management struck the most cautious tone at the firm's latest earnings call when they admitted that initial estimates of an inventory correction in the semiconductor industry were shorter than expected. An inventory correction incentivizes TSMC's customers to order more silicon wafers as they rush to tap into demand. However, as long as the market is in a glut, orders remain low. For the Taiwanese chip manufacturer, this also increases capital expenditure as its machines do not produce at full capacity.
However, troubles in the chip sector might be over next year, according to Ferragu. In a note published on Friday, the analyst outlined that 2024 will mark a rebound in TSMC's income statement. He added that 2025 could prove to be a bumper year for the firm, as revenue touches $100 billion for the first time in TSMC's history. The chipmaker's revenue for the 12 months ending in December 2022 was $75.9 billion.
The firm expects that full year revenue for 2023 will drop by roughly 10% to sit at $68.31 billion. Ferragu agrees with this estimate by also having penned in $68 billion in net sales for TSMC during 2023. As has been evident from the earnings reports of NVIDIA and AMD, the 10% annual revenue drop estimate is supported by a slowdown in the consumer side of the semiconductor industry. Demand for gadgets such as smartphones and personal computers has slowed down and caused TSMC to ship fewer wafers.
However, looking at the future, the analyst believes that TSMC will rake in $100 billion in 2024. This assumption is based on the demand for the aforementioned products recovering, as it adds to the growth in enterprise computing chip products companies use to run data centers and other infrastructure.
These estimates are also fuelled by his research firm's beliefs about future spending by TSMC's biggest customers. According to Ferragu, his firm bases its "conviction" on "a bottom-up perspective, looking at how TSMC’s top customers, which we all know very well, will contribute to such growth."
TSMC benefits from the fact that it is only one of two companies in the world that enable chip designers to get their products manufactured at scale with advanced manufacturing technologies. It is also the largest contract chip manufacturer in the world, aided by big customers such as Apple, MediaTek, Qualcomm, AMD and NVIDIA. The fab is currently manufacturing products with the advanced 3-nanometer chip process, and it aims to shift to 2-nanometer technologies in 2025.
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