TSMC thanks you for your love of chatbots

Chief Executive Officer of TSMC said, 'Global semiconductor industry revenue will climb at least 10 per cent this year.'

By Tim Culpan

Last year’s fast uptake of generative artificial intelligence looks set to continue, which is the kind of good news that will convince Taiwan Semiconductor Manufacturing Co. that the worst is over for the global chip sector.

All it needs now is for us to keep chatting with bots, create AI-generated cat videos, and let computers write school essays.

Global semiconductor industry revenue will climb at least 10 per cent this year, Chief Executive Officer C C Wei told investors on Thursday, a turnaround from a 2 per cent drop last year. TSMC will do even better, with full-year growth of more than 20 per cent versus a 9 per cent decline.

A slowing global economy, military conflict in multiple locations, and weaker demand for consumer devices like smartphones and computers hurt the entire industry in 2023.

The Taiwanese made-to-order chip foundry couldn’t avoid the fallout, despite the buzz that drove sales of the expensive number-crunching chips crucial to AI.

Building AI models and churning out results to user requests are intense tasks. They also burn a lot of electricity, forcing chip designers to come up with more powerful, yet more efficient, semiconductors.

TSMC’s major clients including Nvidia Corp. and Advanced Micro Devices Inc. head up the competition, and no rival to TSMC has yet shown they can manufacture the components better.

That means weakness in AI would spell bad news for TSMC.

Dozens of generative AI products have popped up since OpenAI released ChatGPT in November 2022, including websites that can create photos and videos based only on text input.

Until now, most of those tasks were undertaken in massive server farms stacked with chips manufactured by TSMC at its factories in Taiwan. This year marks the start of a new phase.

“Generative AI is only in its nascent stage,” Chairman Mark Liu said during the earnings conference. “We have only seen the tip of the iceberg.”

TSMC is betting that more of the AI work will be done directly on consumer devices like smartphones and PCs, the very sectors that slumped last year.

Samsung Electronics Co. offers a good example. The company this week announced it was targeting double-digit growth for its latest flagship phone series, and expects to get there by stuffing the device with artificial intelligence features such as live voice and text translation, and enhanced image search.

Apple Inc. is also working on a large-language model, the backbone of text-based generative AI, with a view to bringing advanced features to products like iPhones, Bloomberg News has reported.

Whichever company wants to offer AI, on whatever product, TSMC expects to be there making the needed chips.

Yet TSMC’s optimistic outlook extends well beyond the company. A forecast for double-digit industry growth this year indicates there’s likely to be many winners, and we can see that in its balance sheet.

Stockpiles at the firm fell to 85-days of inventory, the lowest since 2021. That gives us a hint that not only are its own clients ready to start putting in orders for new chips, but the wider sector is in the healthiest shape in more than two years.

Now that inventories are low, and growth has returned, TSMC’s robust year ahead is likely to be a bellwether for a strong rebound in the chip sector. On the provision we all keep talking to our devices.