TSMC To Make 2nd Gen 3nm Chips In 2023 – China Sales Hit By 42% In H1

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The Taiwan Semiconductor Manufacturing Company's (TSMC) advanced 3nm chip manufacturing process is on track for mass production next year, believe investment banks. Details about TSMC's manufacturing plans came after the company shared its revenue for July earlier this month, which outlined a 17.5% annual growth but a 16% sequential drop, which resulted in its advanced depository receipts trading on the New York Stock Exchange to slightly drop in the wake of stellar results posted for June.

In their research notes, investment banks Morgan Stanley and Citigroup provided details for TSMC's margins for the second half of this year and shed light on their expectations about the mass production timelines for the company's first and second-generation 3nm semiconductor processes.

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According to Citigroup and Morgan Stanley, TSMC's first-generation 3nm manufacturing process remains on track for mass production in the second half of next year. This follows the fab's official timeline for mass production, with the facilities that will use the new technologies currently under construction in Tainan, Taiwan.

Additionally, Citigroup believes that the second generation of the 3nm process will enter mass production a year after the first generation. According to the bank, TSMC will be capable of manufacturing semiconductors through the second generate 3nm process in the second half of 2023 - a year after its production lines for the first generation process are operational.

TSMC's revenue of NT$125 million in July marked for a 16% sequential drop, which led to fears about the oft-discussed correct in the semiconductor sector starting to rear its head. In its comments, Morgan Stanley dismissed these concerns and pointed out that TSMC has little to fear at the revenue front, and the gross margin suppression is associated with the higher costs of manufacturing newer chips.

TSMC is currently mass-producing semiconductors with its 5nm chip process, and its first deliveries will be made to Cupertino tech giant Apple Inc for the latter's upcoming smartphone upgrade.

Even though TSMC's revenue grew by 20% annually in the second quarter of 2021, its direct manufacturing costs grew by 30% during the same period annually, highlighting the complexities of manufacturing leading-edge processors. Image: TSMC Form 6-K

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TSMC's revenue at the end of the second quarter of 2021 stood at NT$372 billion, making for a 20% annual growth. This growth came as the chip sector faced historic shortages due to increased demand for consumer electronics in the wake of the ongoing pandemic and supply chain disorder in the automotive sector.

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However, even as the revenue grew by 20%, the fab's direct manufacturing costs, which are those directly attributable to its output, grew by 27%. This highlights the complexities of manufacturing semiconductors using the latest technologies, and a deeper dive inside the fab's Form 6-K reveals that NT$30 billion of the NT$40 billion cost increase is attributable to aging equipment.

TSMC earned NT$ 61 billion in the second quarter of 2021 with its 5nm chip manufacturing process. Image: TSMC Form 6-K

Finally, with 5nm mass production underway, the fab earned NT$61 billion through its latest chip manufacturing process, and at the same time, it also slightly grew its sales of the older and mature 7nm process node. Looking at the fab's overall revenue during the second quarter, it's evident that 5nm sales were the sole reason it managed to grow revenue during the second quarter of this year since it exhibited a revenue growth of precisely NT$61 billion during the second quarter.

Finally, geopolitical tensions have affected the company's business with mainland China. Its sales in the region stood at NT$78 billion at the end of this year's first half, and they exhibited a massive drop of NT$56 billion or 42% compared to the sales at the end of the first half of last year.