The company is taking costly steps to increase the 3nm capacity of its AI chips.
taiwan semiconductor manufacturing (TSM -3.45%) On Thursday, the company lowered its full-year outlook for the semiconductor industry amid persistent macroeconomic and geopolitical uncertainties. The foundry market leader now expects a “softer and more gradual” recovery this year.
Although overall demand is somewhat mixed, TSMC expects to churn out far more AI accelerators this year than in 2023. The company expects that revenue from AI accelerators will more than double in 2024, and that its share of overall sales will reach the first half of 10 in 2024. TSMC expects AI accelerator revenue to grow at 50% annually over the next five years.
Move mountains to increase capacity
TSMC is having some issues with its 3-nanometer process node. apple uses top-of-the-line processes for its custom chips, but its AI accelerators are relegated to older 5nm technology. Nvidia's recently announced Blackwell data center GPUs, which were widely rumored to use TSMC's 3nm node, will instead use a modified version of the same process used by their predecessors. is.
TSMC is taking some special measures to boost the 3nm capacity of its AI chips. The company plans to convert some of its 5nm tools to support its 3nm process, effectively reducing its 5nm capacity in exchange for additional 3nm capacity.
The downside of this move will be a hit to profitability. TSMC expects its gross profit margin to decline by 1-2 percentage points in the second half of this year. The company has not changed its long-term gross profit outlook, but will explore ways to reduce costs to offset the impact on gross profit.
Unfortunately, there is a limit to the additional capacity of new nodes that TSMC can create using this method. In response to an analyst's question during an earnings call whether it would be possible to increase 5nm capacity by moving some resources from the currently underutilized 7nm node, TSMC CEO CC Wei said: , explained that the transition was possible due to the physical proximity of 5nm and 3nm equipment. Similar shifts are not possible on other nodes.
TSMC expects the upcoming 2nm node to proceed more smoothly. Wei expects his 2nm node to tape out more than his 3nm node or his 5nm node in his first two years, mainly due to his AI-related demands. Volume production at the 2nm node is expected to begin in 2025.
intel wild card
TSMC is likely to be drawn into competition with AI chips as demand for them soars. intel (INTC -2.40%) Starting next year, they will compete for supremacy in semiconductor foundries. Intel aims to become the world's second-largest foundry by 2030, and that growth will be fueled by new process nodes that could technologically overtake TSMC.
TSMC is optimistic that its 2nm process will reign supreme, while Intel is similarly optimistic that its Intel 18A process will be the frontrunner once mass production begins early next year. Intel has one important advantage. That means Intel 18A can significantly improve performance and efficiency by using backside power delivery technology. TSMC will not implement backside power supply until his 2nm node of the second generation.
Demand for AI chips will drive TSMC's growth going forward, but the company won't be able to monopolize the market. Intel and Samsung's production capacity, which rivals TSMC's best process nodes, could weigh on market share and profitability.
Timothy Green has a position at Inter. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends options for long January 2025 $45 calls on Intel and his short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.