The Six Five team discusses TSMC Q2FY24 earnings.
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Transcript:
Patrick Moorhead: TSMC bellwether for CHIPS in the industry. Dan, what is going on? By the way, if you’re in Taiwan, you do two earnings, very similar to what they do in South Korea, but this was the real earnings, not the preview.
Daniel Newman: They give a preview. They gave it about a week and a half ago on the revenue, and then of course, they came out all in. Look, I mean, Pat, would you have been surprised to find out that they beat their expectations and that they slightly raise their guidance and that they are telling the world that they’re having a very hard time dealing with the outsized demand for AI? Any surprises for you there?
Patrick Moorhead: None, buddy. That’s not a shocker.
Daniel Newman: So I mean, the first thing is that their preview on numbers looked positive. What did C. C. Wei have to come out and really have to say here? Look, he said he’s never basically seen demand like this. Their customers want to put AI in everything they’re building right now. Of course, we saw the whole tech market fell a bit on its head the last couple of days. The former president Trump came out and talked about some sort of tariff tax for the protection that the United States is giving to Taiwan. Look, it’s interesting because to me, it’s a bit of a nothing burger. I mean, look, there is some real truth to what he’s saying. The US and the importance between the US and Taiwan relationship does definitely create more of a pause for China, which has been doing drills in the South China Sea for how long preparing itself for some sort of potential attack on Taiwan. Taiwan manufactures over 90% of the leading edge chips, which basically means that if there was some sort of change of control or power that was to take place in Taiwan, it could completely break the supply chain, it could disrupt all the innovation. And no matter how many great companies like NVIDIA and AMD are designing chips and Qualcomm here in the us, we would not be able to manufacture those chips.
So I know this isn’t the earnings conversation, but there is a tie together as to why these great results have not yielded a higher tidal wave of growth in the stock price because there are some concerns as to what policies might come into place, and as it’s looking more and more probable that there could be a second term of Trump in office, he did live his word. When he said he was going to do it with China, he did it, and the question is is now what he’s saying about Taiwan. What does that mean? Now, I will put on the other side of this pat that I do think that the outsize demand and the sort of insatiable demand for AI, if we ended up putting some tax or tariff on exports out of Taiwan, it would just get absorbed. Right now, look at the margins and what people are paying. They could just charge more. I mean, I really do say that, and I know I’m a bit cynical and it’s probably a little different on the handsets and PCs than it might be on a data center server, but I do think most of the price would get absorbed. The problem is who actually ends up paying for it. I think right now, just a quick political thought on this is what Trump is basically saying is, “I’m going to bring jobs back to the US.” That’s a commitment that he’s made, and this is one of those things that has been completely offshore, he’s saying. By the way, the CHIPS Act was all about this already. This isn’t some new thing that he’s all of a sudden started. We wanted to bring more-
Patrick Moorhead: Well, Trump started what was the CHIPS Act? In fact, and this is public, I can talk about this, I did consulting for the DOD when Trump was in office the first time on all of this stuff.
Daniel Newman: So as you and I are running through those, the metrics though, is look, we need to bring I’ve said 20 to 30% of the leading edge out of Taiwan. It needs to move elsewhere, and ultimately, it would be pretty good if we got to parity. That doesn’t necessarily mean Taiwan has to shrink. This doesn’t have to be a lowest common. It can be a highest common denominator where the chips base and the market for everything from HP high bandwidth memory all the way to AI processors and XPUs. I think the rumor yesterday that Broadcom is going to make one for OpenAI. This scale means we need capacity. We need it in the US, we need it in Europe, we need it in Israel, we need it in other parts, maybe Japan and other parts of Asia. So anyways, long story coming all the way back around TSMC here, the demand is outsized. 50% now is at the leading three and five nanometer. They’re considering moving some of their five nanometer capacity to three because so much of this AI silicon is being built on three and the demand for that is sold out for over two years now. CoWoS sold out for over two years now. Basically, any concern about this sort of chip AI thing, this infrastructure thing being a fad that’s going away isn’t showing in any infrastructure commitment.
So TSMC is indicating that NVIDIA should have a good quarter. AMD, its numbers are going to be a little bit interesting based upon some of the concerns on order cancellations, which we’ll probably have to come back and talk about at some point, but the AI infrastructure build out is real. When it becomes a consumption layer that’s real and measurable and driving productivity, that ingestion period isn’t the digestion, ingestion period isn’t fully understood, but this spend on infrastructure build out doesn’t seem to be slowing and TSMC’s numbers were very indicative of that.
Patrick Moorhead: The thing that really stood out for me is literally we’re saying we are sold out for 2025, and I look at the specific words used. My takeaway is we could be sold out for 2026. This has to be a positive sign for Intel, absolutely 100% has to be a sign for them, and it’s got to be a positive sign for Samsung and their foundry services business. There is just no possible way for us to not conclude that that’s the case. You are going to have to work with Intel, Intel, Intel Foundry Services, and you’re going to have to work with Samsung Foundry. You’re going to have to spend the money to put that in there and that could be tens of millions of dollars. There are design oddities and flow changes you have to make in a design. You can’t just do a copy and paste between founders. I wish it were that easy, but it’s not. One great proof point for that is when you look at cadence and synopsys and their tools, they have to be specifically optimized for a certain foundry and a certain node and flow. Anyways, positive sign for-
Daniel Newman: By the way, really interesting if I could say just that you pointed that out. I mean, C. C. basically said no joint venture, which again, that could be just posturing, but maybe, I mean, I don’t know if they need it, but two, Pat, that where does that excess demand go because even if TSMC goes all out on building more, it’s years. So what I’m saying is the immediate demand, the Samsung and Intel opportunity you pointed out is really, really substantial. So while I know a lot of people have been down on Intel, I mean, if they can just get it right, if they can just get it right in terms of the outsized demand and take all that in, there’s a huge growth opportunity for them on that side of the business.
Patrick Moorhead: Think of it takes three to four years from the decision and I am going to start building a foundry to pumping out wafers. Packaging takes less time, but if you want something like that, you’re looking at three to four years. That’s the timeframe, I think more like three years we see from TSMC. If it’s a new city like Columbus, Ohio with Intel could take four years.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
