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Published: 15:29 08 Mar 2024 GMT
The world’s largest semiconductor foundry, Taiwan Semiconductor Manufacturing Company (TSMC for short) has a client portfolio of two halves.
Cornerstone client Apple Inc (NASDAQ:AAPL, ETR:APC), though it remains the world’s second most valuable company, has experienced a rough patch of late, with iPhone sales plummeting in the important Chinese market.
This presents a problem for TSMC, which generates a significant portion of its revenues by manufacturing the chips that go into Apple iPhones.
But TSMC has found a hero in its other cornerstone client, the fabless microchip designer Nvidia Corp.
TSMC manufactures the microchips that Nvidia designs, a mutually beneficial relationship that has served TSMC incredibly well ever since Nvidia took over the artificial intelligence world with its bleeding-edge designs.
In fact, although Apple is facing dark clouds in China with iPhone sales collapsing 24% in the first six weeks of 2024, TSMC sales figures released today suggest that Nvidia orders can more than make up for narrower opportunities elsewhere.
TSMC increased its revenues by 9.4% year on year in the first two months of 2023, with sales totalling 397.43 billion New Taiwan dollars (US$12.7 billion).
In typical TSMC fashion, the trading update provided little additional insight, but a price target increase from JPMorgan this week, which cited AI exposure as the main reason, feeds into the narrative that AI will sufficiently offset any ongoing iPhone weaknesses.
In fact, JPM reckons TSMC’s AI-related revenues will increase a further 25% by 2027.
The gap has certainly widened between smartphone and high-performance computing (HPC, where AI chip production is logged) revenues, per TSMC’s financial.
In the 2022 financial year, smartphone sales comprised 39% of TSMC’s revenues and HPC 41%.
In 2023, the split was 500 basis points wider at 38% and 45% respectively.
HPC sales flipped smartphone sales as the top revenue generator for the first time in TSMC’s history in the first quarter of 2022.
There is more to TSMC’s HPC revenue base than just Nvidia, and there is more to its smartphone revenue base than just Apple, but they offer a handy lens to view the shifting patterns of TSMC’s business model.
According to the market, these patterns are shifting in promising ways- TSMC stock is currently at an all-time high, having rallied over 30% year to date.
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