TSMC offered its take on market developments at its quarterly earnings call on April 18: while demand for AI-related high-performance computing (HPC) continues to grow, the same cannot be said for other applications.
The smartphone sector currently lacks significant momentum for growth, even though demand is gradually recovering. Meanwhile, although the demand for PCs has already bottomed out, the market is showing even slower signs of recovery, while demand for IoT and other consumer electronics continues to remain sluggish, and automotive chips are stuck in an inventory destocking phase.
Compared to TSMC's previous earnings call, automotive electronics is the only sector to see a significant downgrade, with a decline now forecasted instead of the slight growth as earlier predicted. In TSMC's words, demand for mature processes has become extremely weak, in stark contrast with the feverish momentum driven by advanced process, high speed AI chips.
Although TSMC did not adjust its forecast for overall corporate revenue, it did slightly reduce annual growth estimates for the overall semiconductor and foundry market, with growth in 2024 attributed primarily to a low baseline in 2023 due to inventory destocking.
Semiconductor supply chain and IC design companies have previously cautioned that nearly all hot ticket items in 2024 will be related to AI; more specifically, demand will be concentrated on cloud-based AI chips, while AI smartphones and PCs run the risk of being all bark but no bite.
IC design companies note that their end customers have begun downgrading their annual sales forecasts for low-end and mid-range smartphones and PCs. With weak demand in the low- and mid-range, they can only hope that they will see some growth by hitching on the AI bandwagon.
More concerning is TSMC's gloomy forecast for automotive chips: although the use of automotive semiconductors has increased, this has not been enough to offset a flatlining general economy, as well as the EV market turning into a highly competitive red ocean.
Since most Taiwan-based IC companies have only just begun their foray into automotive applications, the depressed market has less of an impact compared to foreign IDMs, as shipment volumes currently remain relatively low. Even so, this will be a setback to their progress in penetrating the automotive supply chain, as slower pull-in orders from customers will result in lower supply volumes.
Situations in major markets are difficult to evaluate at present. In the US, even though recent CPI and unemployment figures seem to point to economic recovery, it remains to be seen whether this is truly the case, and if this is reflected in consumer electronics sales numbers. Meanwhile in China, although demand remains for high-end products, economic deflation, and geopolitical factors make predictions highly uncertain.
Under these circumstances, IC design companies will need to adjust production strategies on the fly, since any excess inventory may cause headaches leading into the year-end peak season or even 2025. Since unused production capacity remains high in mature processes, except for a handful of in-demand process nodes, suppliers are more willing to cut prices, and thus there is no need to compete for advanced processes and packaging in the short term. This may be why TSMC has lowered its outlook for the foundry industry in general, but not its own operational expectations.
Article translated by Kevin Wang
