According to Taiwan’s Commercial Times, TSMC continues to face challenges from ongoing price undercutting and competitive bidding in mature semiconductor manufacturing processes. Concerns arise about the company’s ability to offset these challenges with AI-related orders. Reports from the market suggest that on July 20th, TSMC revised down its fiscal forecast for the year for the second time, slashing its annual revenue target (in USD) from an anticipated decline of 1% to 6% to a significant reduction of 10%. However, given the persistent sluggish economic conditions of late, there is speculation of a potential third adjustment that could lead to a year-on-year revenue decline of 12%.

In the current investment landscape, artificial intelligence has become a focal point this year. Additionally, the strong demand for CoWoS packaging has contributed to a positive outlook for TSMC. However, it’s important to note that AI’s contribution to TSMC’s overall revenue is not substantial.

Using the popular H100 model from NVIDIA as an example, it only impacts TSMC’s performance in the N4 manufacturing process. This limited contribution falls short of countering the downward trend in consumer product demand utilizing the N3 and N7 manufacturing processes.

Market Speculations Emerge About TSMC’s Performance and Challenges

Market sources indicate that TSMC’s performance in mature processes (7nm and above) accounted for 47% of its output in the second quarter. While prices managed to hold steady in the first half of the year, ongoing softness in end-user demand has prompted Chinese manufacturers to engage in aggressive expansion, price reduction, and competition for orders, which inevitably impacts TSMC. There are even reports circulating about a potential loosening of 7nm production capacity.

In response, TSMC stated that its perspective and outlook on market demand align with the contents of its July press conference. As of now, no new updates are available. Furthermore, TSMC refrains from commenting on market speculations or shifts in customer business dynamics.

(Photo credit: TSMC)

In just a short span of six months, AI has evolved from generating text, images, music, and code to automating tasks and producing agents, showcasing astonishing capabilities. TrendForce has issued a new report titled “Surge in AIGC Applications to Drive Long-Term Demand for AI Servers.” Beyond highlighting the latest developments in AI, the report also delves into strategies adopted by governments and industries to ensure the positive trajectory of AI’s development. It analyzes the projected timeline for the widespread implementation of AIGC applications and their impact on the demand for AI servers.

• AIGC Application Wave Expected to Arrive by 2025 Once Rules are Set

While the AIGC application frenzy in the first half of 2023 has raised concerns, it has also prompted governments and industries to actively address potential risks and issues stemming from AIGC applications, along with devising corresponding solutions. Currently, both the government and industries have strategies in place to regulate AIGC applications in terms of legal oversight, privacy protection, identity establishment, reliability enhancement, security augmentation, and copyright maintenance.

Considering the time required for governments to draft legislation and industries to enhance AI’s reliability, security, and copyright protection, it is estimated that the rules of the AIGC application will gradually solidify by late 2024 to early 2025, paving the way for the AIGC application surge around 2025.

Beyond the five major categories of AIGC applications—text generation, image generation, music generation, video generation, and code generation—AIGC technology-based applications like AI customer service, personalized AI assistants, AI search, and AI productivity tools are also gaining prominence. In the realm of gaming, whether in VR or open-world games, AIGC technology is set to significantly enhance immersion and freedom, ushering in revolutionary experiences.

• Long-Term Demand for AI Servers to Benefit Server Brands and ODMs

To secure a dominant position in the AI technology industry and embrace the upcoming AIGC application wave, application service providers, tech giants, national institutions, and startups are competing to bolster their AI computing resources. As core computing components experience increased shipments, the shipment volume of AI servers, which serve as foundational computing units, is also expected to surge.

In the proactive year of 2023, where institutions and enterprises are aggressively building computing resources, the AI server shipment volume is projected to grow substantially. Given the limited upstream semiconductor capacity, this momentum is likely to extend into 2024.

By 2025, propelled by the AIGC application frenzy, AI server shipments are poised for further stimulation. Consequently, due to institutions and businesses preemptively establishing computing resources and the projected timeline for large-scale AIGC application implementation, the AI server market is anticipated to witness a sustained demand surge. Given the intricate manufacturing of AI servers and their higher degree of customization, their profitability exceeds that of general servers. With the continual growth in AI server shipments, relevant server brands and ODM manufacturers are poised to reap significant benefits.

According to a report by Taiwan’s Commercial Times, China’s Haitong Securities has taken the lead in reducing shipment expectations before Apple’s upcoming new product launch next month. The company has lowered the shipment forecast from the initial 83 million units to 77 million units, marking a decrease of 6 million units.

Industry experts point out that lackluster demand in the end market and challenges in the manufacturing process are the main reasons behind the market’s growing skepticism towards iPhone 15 shipment numbers.

Haitong Securities indicates that Apple’s iPhone 15 shipment volume could be revised down to 77 million units. This is primarily due to lower-than-expected yield rates for the CMOS image sensors (CIS) provided by Sony for the periscope lenses. The production bottleneck for iPhone 15 and Plus models is Sony’s 3-layer CIS structure (PD/TX + pixel + ISP), leading to subpar production yields.

Industry experts also mention that the high difficulty in producing the titanium metal frame is attributed to the differing coefficients of thermal expansion between titanium and aluminum. However, this issue can be managed by increasing Foxconn’s production capacity.

The LIPO (Low Injection Pressure Overmolding) screen, on the other hand, faces low yield rates from LG and will need Samsung’s support. Nonetheless, the supply situation for these two components should reach a controlled stage.

Industry sources believe that delays in production for iPhone 15 stem from Sony’s lens sensors, the new titanium alloy frame, and the 1.55mm narrow border screen. However, the primary reason for Apple’s adjustment of iPhone 15’s sales target remains concerns over demand. Both the iPhone 15 Pro and iPhone 15 Pro Max are expected to come with higher price tags, potentially dampening consumer willingness to purchase. The decision to trim production plans prior to the new phone’s release warrants close attention to whether it garners consumer acceptance after hitting the market.

Based on a recent analysis by TrendForce, LG Display is encountering a challenge with its supply of 6.7-inch panels and chassis for the iPhone 15 Pro Max. The issue revolves around tolerance, leading to the development of a growing dark spot (GDS) once the components are assembled. Unfortunately, this problem has hindered the successful passage of quality verification tests. Consequently, LGD’s production timeline is anticipated to face a one-month delay, awaiting the resumption of shipments following the completion of revalidation later this month. To manage the reduced panel supply during this interim period, Samsung Display (SDC) will step in and provide supplementary support.

From the standpoint of downstream assembly facilities, the adjustments in supply have the potential to impact production operations in Zhengzhou for approximately two weeks. It’s projected that by ramping up production subsequently, these effects can be mitigated.

On a different note, BOE has successfully achieved its goal for this year by participating in the development of panels for both the iPhone 15 and 15 Plus. However, owing to recent quality concerns necessitating mask adjustments, they might encounter a significant decrease in shipments. Simultaneously, since SDC is a key supplier for these two new models as well, they will step up to fill the void created by BOE’s supply shortfall.

Taking a historical perspective on BOE’s involvement in supplying iPhone panels, their journey began with the iPhone 12, providing components for repairs, and subsequently transitioning into regular supply for the iPhone 13. Their prowess in LTPS and OLED technology has been acknowledged. However, with the introduction of the iPhone 15 and 15 Plus models, which incorporate the Dynamic Island design featuring a center-hole punch, the demands placed on the panels have become more stringent. The alteration in mask design is likely a pivotal factor that requires additional time for BOE to optimize panel yield and quality.

TrendForce underscores that the issue pertaining to panel quality only marginally affects the overarching shipping schedule for the iPhone 15 series. Its main consequence lies in the reshuffling of panel suppliers, while SDC continues to assert its dominance as the primary supplier of new model iPhone panels this year, accounting for nearly 70% of the market share.

The global automotive landscape is undergoing a decisive shift toward new energy vehicles (NEVs). TrendForce reports that in 1H23, NEV sales—which encompass battery electricity vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles (FCEVs)—soared to an impressive 5.462 million units, reflecting a growth of 33.6% YoY. Specifically, Q2 sales reached 3.03 million units, a 42.8% YoY surge, constituting 14.4% of total car sales for the period, and playing a pivotal role in 1H23 growth.

In Q2, BEVs alone posted sales of 2.151 million units, marking 39.3% growth YoY. While Tesla maintains the lead with a market share of 21.7%, BYD trails closely behind with a boosted share of 16.2%. Moreover, GAC Aion, a brand that has been making waves primarily in the Chinese market with its high value-for-money proposition, clinched the third spot with a 6% market share. Recently, the company has launched high-end models priced above CNY 220,000, aiming to diversify its product range. The top 10 BEV brands in Q2 remained fairly consistent with Q1, with only a minor shuffling in ranks. However, compared to the same period in 2022, fewer Chinese brands made the list, likely due to the growing number of EV models from traditional automakers and fierce competition among Chinese brands.

PHEVs weren’t left behind, registering sales of 876,000 units in Q2—a striking 52.9% YoY increase. Astonishingly, about 66% these sales hailed from the Chinese market. In this segment, BYD continued its lead with a whopping 36.5% market share. Its high-end subsidiary Denza, recorded increasing sales, escalating its market share to 3.4% and climbing to seventh place. Another brand to watch, Li Auto, set a new Q2 record with 87,000 units sold, keeping its second-place position firm with 10% market share. Among international competitors, both Volvo and Jeep noted growth over the previous year, with Jeep crossing 30,000 units, an achievement that’s brought them into the top five for the first time.

While major markets including China, Western Europe, and the US continue to dominate NEV sales, emerging players like Thailand and Australia have made significant strides in 2023. Both nations exceeded 35,000 units in sales in 1H23, with Thailand quadrupling its 2022 figures and Australia experiencing a fivefold increase.

Although these figures are modest in comparison to global sales, they highlight the vast potential of these markets. Recognizing this growth trajectory, many major automobile brands are strategically planning their expansions into these burgeoning regions.