TSMC Tightens Grip on Leading-Edge Chipmaking Despite Sector Jitters, Hana Says

"TSMC's advanced CoWoS packaging technology is helping expand margins," Hana Securities says

Hana Securities said July 20 that while fears of a slowdown in artificial intelligence investment have spread across the semiconductor sector and driven sharp declines in memory-chip stocks, Taiwan Semiconductor Manufacturing Co. is further strengthening its competitiveness in leading-edge manufacturing.

Kim Rok-ho, an analyst at the brokerage, said TSMC delivered record second-quarter results that beat market expectations. Revenue rose 34% from a year earlier and 12% from the prior quarter to $40.2 billion. Gross margin climbed to 67.7%, topping the company's guidance range and setting another record high.

AI was the biggest driver of the strong performance, Kim wrote. Demand for high-performance chips used in AI servers and data centers surged, pushing TSMC's high-performance computing revenue up 20% from the previous quarter. That segment accounted for 66% of total revenue. Smartphone chips made up 22%, but AI-related demand more than offset the lower share.

Kim said the most advanced process technologies, which are used mainly for AI chips, led the earnings growth. The 3-nanometer and 5-nanometer nodes accounted for more than half of total revenue, and the next-generation 2-nanometer process has also begun contributing sales. High fab utilization, cost reductions, favorable foreign-exchange conditions and advanced packaging technologies such as TSMC's chip-on-wafer-on-substrate, or CoWoS, all contributed significantly to margin expansion.

Hana Securities forecasts TSMC's third-quarter revenue at $44.6 billion to $45.8 billion, implying growth of 37% from a year earlier and 12% from the prior quarter at the midpoint. Kim said the early stage of full-scale production for the next-generation 2-nanometer, or N2, process could temporarily lift costs, but strong demand for AI-driven leading-edge nodes should more than offset that burden.

The brokerage also raised its forecast for TSMC's annual revenue growth this year to more than 40% from its previous projection of more than 30%. It increased its capital spending outlook to $60 billion to $64 billion from $52 billion to $56 billion.

Kim said another growth driver will be added in the second half as 2-nanometer mass production ramps up in earnest. TSMC is continuing to expand overseas production sites in the US, Japan and Europe. It is also reallocating some existing 6-inch and 8-inch production lines so they can be used for leading-edge manufacturing.

Hana Securities said TSMC's dominance in advanced processes at the forefront of AI demand is becoming even more entrenched. Kim said processes below 7 nanometers account for 77% of TSMC's wafer revenue, and with 2-nanometer sales beginning to contribute, advanced nodes will start to feed more fully into earnings in the second half.

He said TSMC's decision to raise both its annual revenue outlook and capital spending plan signals that major customers including Nvidia, Apple and Advanced Micro Devices will continue increasing investment in AI semiconductors.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com