After posting record high profit in the third quarter and seeing healthy growth in the next five years, TSMC may now be facing another unexpected challenge, as the U.S. Commerce Department is reportedly probing the foundry giant to determine if it has manufactured smartphone or AI chips for Huawei, according to The Information.

According to sources cited by the report, the investigation is still in its early stages. It is unclear how long it will take the department to gather sufficient information and reach a conclusion.

If the U.S. Commerce Department determines that TSMC violated export regulations in its dealings with Huawei, the company could face fines or harsher consequences, such as temporary restrictions on accessing U.S. technology, according to The Information.

The ongoing investigation is examining whether TSMC has been engaged in the production of AI chips designed by Huawei, according to the report. These AI server chips have gained popularity among Chinese customers as an alternative to NVIDIA’s chips, which they are barred from purchasing due to U.S. export regulations.

Additionally, the inquiry is said to be exploring whether TSMC manufactured smartphone chips for Huawei’s devices as well. The Information notes that Huawei’s Mate 60 series, featuring a processor made in China by SMIC, was a potential target of investigation.

In 2020, the U.S. Commerce Department has significantly broadened Huawei’s blacklisting in an effort to limit the company’s access to foreign semiconductor chip sales, banning it from purchasing chips made with U.S. technology due to national security concerns.

Citing sources with direct knowledge to the matter, The Information notes that the department reached out to TSMC recently to inquire about any indirect sales to Huawei, possibly conducted through intermediary companies under different names. On the other hand, it is reportedly examining whether TSMC performed adequate due diligence, such as know-your-customer checks, before processing orders.

The investigation, for sure, would be politically sensitive due to TSMC’s global significance as a key supplier to U.S.-based tech giants like Apple and NVIDIA, the report points out.

It is worth noting that the Biden administration is scheduled to provide a USD 6.6 billion subsidy to TSMC, supporting the company’s efforts to build its third fab in Arizona, USA, with total investment rising to USD 65 billion.

TSMC Arizona’s first fab is on track to begin production leveraging 4nm technology in first half of 2025. Its second fab will produce 2nm process with next-generation nanosheet transistors in addition to the previously announced 3nm technology, with production beginning in 2028. The third fab will produce chips using 2nm or more advanced processes, according to TSMC.

According to Reuters, TSMC responded on Friday by stating that it was a law abiding company and committed to complying with laws and regulations, including export controls.

“If we have any reason to believe there are potential issues, we will take prompt action to ensure compliance, including conducting investigations and proactively communicating with relevant parties including customers and regulatory authorities as necessary,” noted TSMC, according to the emailed statement cited by Reuters.

Citing a previous report by AnandTech, The Information notes that TSMC has confirmed that it had stopped processing new orders from Huawei in May, 2020.

Read more

• [News] TSMC’s C.C. Wei Declares No Interest in Acquiring Intel’s Fab, Emphasizes ‘AI is Real’
• [News] TSMC 3Q24 EPS Hits Record High, Reaches NT$12.54

(Photo credit: TSMC)

TSMC held its earnings call earlier today, October 17th. According to a report in Economic Daily, based on an exchange rate of USD 1 to TWD 32, the company estimates the fourth-quarter revenue to be between USD 26.1 billion and USD 26.9 billion, representing an average quarter-over-quarter increase of 13%.

For the third quarter, TSMC reported consolidated revenue of USD 23.5 billion. The gross margin was 57.8%, while the operating profit margin was 47.5%.

Looking ahead to the fourth quarter, TSMC estimates that the revenue will be between USD 26.1 billion and USD 26.9 billion, estimated an average quarter-over-quarter increase of 13%. The gross margin of the fourth quarter will range between 57% and 59%, with the operating profit margin expected to be between 46.5% and 48.5%.

As TSMC has announced its estimated revenue for the fourth quarter, the company anticipates a year-over-year increase of 30% for 2024, revised up from the previous estimate of 24%-26%. TSMC Chairman and CEO C.C. Wei noted that this projected growth of nearly 30% is driven by advanced technology and AI.

According to a report from Commercial Times, driven by strong AI demand, TSMC will continue its investments in this area. Regarding the capital expenditure, TSMC estimated that the capital expenditure of 2024 will be slightly above USD 30 billion, aligning closely with the projected range of USD 30 billion to USD 32 billion estimation from the Q2 earnings call in July 2024.

(Photo credit: TSMC)

At TSMC’s third-quarter earnings call on the 17th, Chairman C.C. Wei was asked about potential interest in Intel’s spin-off of its IDM business. According to a report from TechNews, Wei responded with two decisive “No’s,” indicating that TSMC has no interest in acquiring the businesses.

C.C. Wei noted that a California-based IDM has been a strong customer for TSMC, consistently placing sizable orders. While Wei did not explicitly name the company, industry observers widely believe the client to be Intel.

During the call, analysts also raised questions about whether the current AI surge might be a bubble and how TSMC views the AI boom.

Wei confidently stated, “AI is real,” and noted that many large-scale cloud customers and AI innovators are collaborating with TSMC. He also mentioned that TSMC utilizes AI and machine learning (ML) within its own facilities to enhance capacity, add value, and improve yield rates.

Wei explained that for TSMC, even a 1 percent improvement in efficiency through AI could result in a revenue increase of NT$1 billion. He also noted that TSMC is not the only company benefiting from AI, and many other businesses are already leveraging AI to boost productivity.

Wei further stated that the demand for AI is just beginning. He referenced a key customer who described the current demand as crazy and noted that it is only starting, with expectations that this trend will continue for several years. This was widely seen as aligning with earlier remarks from NVIDIA CEO Jensen Huang regarding the high demand for chips based on the Blackwell architecture.

(Photo credit: TSMC)

TSMC today announced consolidated revenue of NT$759.69 billion, net income of NT$325.26 billion, and diluted earnings per share of NT$12.54 (US$1.94 per ADR unit) for the third quarter ended September 30, 2024.

According to the press release issued by TSMC, year-over-year, third-quarter revenue increased by 39.0%, while net income and diluted EPS both rose by 54.2%. Compared to the second quarter of 2024, third-quarter results showed a 12.8% increase in revenue and a 31.2% increase in net income. All figures were prepared in accordance with TIFRS on a consolidated basis.

In US dollars, third quarter revenue was $23.50 billion, which increased 36.0% year-over-year and increased 12.9% from the previous quarter.

Gross margin for the quarter was 57.8%, operating margin was 47.5%, and net profit margin was 42.8%.

In the third quarter, shipments of 3-nanometer accounted for 20% of total wafer revenue; 5-nanometer accounted for 32%; 7-nanometer accounted for 17%. Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 69% of total wafer revenue.

(Photo credit: TSMC)

As ASML accidentally released its financial report nearly a day ahead of its schedule due to a “technical error,” the Dutch semiconductor giant’s Q3 performance and its forecast for 2025 have also startled all by reporting orders at half of what the market predicted, raising concerns on the lackluster outlook of semiconductors despite strong demand for AI-related chips, according to the reports by Bloomberg and Reuters.

The result is regarded as a warning signal, as it might imply the weak performance for ASML’s major clients, such as tech heavyweights Intel and Samsung, the reports note. TSMC, another of ASML’s client, will release its Q3 earnings results tomorrow.

ASML shares plummeted 16%, marking their largest drop since June, 1998, the reports by Reuters and Bloomberg state.

Lackluster Q3 Bookings and 2025 Outlook as Customers Remain Cautious

ASML, known for producing the world’s most advanced chipmaking equipment such as High-NA EUV machines, posted a net profit of 2.1 billion euros on revenue of 7.5 billion euros (USD 8.2 billion) in Q3. However, it reported third-quarter bookings of €2.6 billion (USD 2.8 billion), falling short of the average estimate of €5.39 billion from analysts surveyed, according to Bloomberg.

According to its press release, ASML revised its 2025 total net sales forecast to a range of €30 billion to €35 billion, down from its previous estimate of up to €40 billion.

For next year, the company anticipates a gross margin between 51% and 53%, lower than the prior projection of 54% to 56%, mainly due to delays in the rollout of its high-end extreme ultraviolet machines.

According to a statement by ASML Chief Executive Officer Christophe Fouquet cited by the reports, the recovery of the semiconductor industry is progressing more slowly than anticipated, and this cautious outlook is expected to persist into 2025, leading to more conservative behavior from customers.

Key Clients in Trouble while Chip War Remains an Issue

It is worth noting that according to Reuters, ASML indicates that despite strong demand for AI-related chips, other segments of the semiconductor market are facing prolonged weakness. This has caused logic chip manufacturers to postpone orders, while memory chip companies are only planning “limited” expansions in new capacity.

According to a report from South Korean media outlet Business Korea, Samsung is said to mull to reduce its procurement of ASML’s next-generation EUV lithography equipment. Reportedly, Samsung initially planned to purchase more than three units of the next versions, EXE:5200, EXE:5400, and EXE:5600, over the next ten years. However, the company has now decided to introduce only the EXE:5200.

On the other hand, another struggling semiconductor giant, Intel, has secured five units of High-NA EUV machines from ASML to ensure its progress with the 2nm node, according to a previous report by TheElec. However, as the company has been doing its best to reduce expenses through restructuring and delaying overseas expansion, whether it will stick to the original purchase plan remains to be seen.

The report by Bloomberg also warns that while China was ASML’s largest market, the demand from China may slow in the coming periods, as Washington’s ongoing chip war with Beijing remains a persistent long-term concern for ASML.

Read more

• [News] Intel Completes Assembly of Second High-NA EUV System, ASML Confirms
• [News] Samsung Reportedly Reduces Procurement of ASML’s Next-Generation EUV Lithography Equipment

(Photo credit: ASML)