[Peace&Chips] TSMC Paving a Flower Path for Foundry... Samsung Electronics and Intel Chasing Behind

Taiwan TSMC Reports Increased Q1 Earnings
Market Lowers Forecasts, Cautious Optimism

Samsung Electronics and Intel Focus on Profitability Improvement
Positive Outlook for Samsung Foundry in Second Half

The Q1 earnings report of Taiwan's TSMC, the world's No. 1 foundry (semiconductor contract manufacturing) company, was released on the 18th. Revenue increased by 16.5% year-on-year to TWD 592.64 billion (KRW 25.1279 trillion), and net profit rose by 8.9% to TWD 225.49 billion. These figures exceeded both TSMC's previously announced revenue forecasts and market expectations for net profit.

TSMC expects its Q2 revenue to grow about 30% year-on-year, following the strong Q1 performance. Demand for advanced processes such as 3-nanometer (nm; 1 nm = one billionth of a meter) and 5 nm is anticipated to drive sales. With AI demand continuing to surge this year as it did last year, TSMC foresees growth centered on advanced process technologies. Although some wafers were damaged due to the recent earthquake in Taiwan, production is expected to recover within Q2.

On the surface, the outlook seems very promising, but TSMC has drawn a line against vague optimism. CEO C.C. Wei stated during the Q1 conference call, "The overall semiconductor market revenue forecast, excluding memory semiconductors, has been revised downward to about a 10% increase year-on-year," adding, "The foundry industry's growth rate is expected to be in the mid-to-high teens percentage range." Following this outlook, stock prices of not only TSMC but also major semiconductor companies declined.

Of course, a double-digit percentage increase in the overall market revenue is undoubtedly positive news for the foundry industry. TSMC expects that sales contributions from server AI processors such as graphics processing units (GPUs), AI accelerators, and central processing units (CPUs) will more than double this year, accounting for just over 10% of total revenue. It is also projected that these will grow at an average annual rate of 50% over the next five years, reaching over 20% of total revenue by 2028.

What about Samsung Electronics, the No. 2 player in the foundry market? The company faced significant challenges last year due to the semiconductor market downturn. It is unlikely to see a clear recovery in Q1. However, the launch of new AI smartphones and PCs could boost market demand, which is a positive factor. Additionally, having achieved its highest annual order intake last year, Samsung has laid a foundation for future growth.

Since Samsung Electronics does not disclose foundry division sales separately, market estimates must be considered. Hana Securities and Hyundai Motor Securities estimate that combined sales of the system semiconductor design (System LSI division) and foundry business in Q1 will be around KRW 5 trillion, up from the same period last year. Annual sales could reach approximately KRW 23 trillion.

Although operating losses are expected to continue throughout this year, the deficit is projected to narrow in the second half. Researcher Jongwon Lee from Shinsangin Securities said, "(Samsung Electronics') foundry performance is expected to bottom out in the first half and improve from Q3 onwards, driven by an increased share of advanced processes including 2 nm."

Intel, which expanded its scale this year by changing its foundry revenue calculation method, is also expected to focus on reducing operating losses throughout the year. Intel recorded a loss of USD 6.955 billion last year and aims to break even by 2027 through profitability improvements. Intel also plans to accelerate the introduction of next-generation extreme ultraviolet (EUV) lithography equipment, the 'High Numerical Aperture (NA),' earlier than originally planned next year to enhance competitiveness in advanced foundry processes.

The main battleground for these foundry companies is the United States. Since major AI customers like Nvidia and AMD are based in the U.S., fierce competition based on advanced process technology is expected there. Intel, TSMC, and Samsung Electronics have all received subsidies from the U.S., and these companies plan to strengthen their competitive base by establishing not only manufacturing facilities but also research and development (R&D) centers in the country.

Editor's NoteSemiconductors, often called the rice of modern industry. Although we hear the term daily, it can be hard to explain. Peace & Chips will make the complex concepts and overall industry trends easy to digest. Just take a spoonful.