Taiwan Semiconductor Manufacturing(NYSE: TSM), popularly referred to as TSMC, is a key participant within the tech sector because it manufactures chips for a number of firms that serve a number of industries, starting from smartphones to computer systems to information facilities to the Web of Issues (IoT).
That is the explanation why the Taiwan-based foundry’s quarterly outcomes can be utilized as a barometer to gauge the well being of different firms as nicely. For instance, Apple(NASDAQ: AAPL) is reportedly the highest buyer of TSMC’s chips, accounting for 25% of the latter’s high line. Apple faucets TSMC’s fabrication amenities to fabricate the processors utilized in iPhones and iPads.
That is why TSMC’s terrific third-quarter outcomes, which had been launched on Oct. 17, inform us that the enterprise of its high buyer is more likely to be in stable form. The Taiwanese firm reported a 36% year-over-year improve in income to $23.5 billion, together with a 54% bounce in earnings. Its outcomes bested Wall Avenue’s expectations, and extra importantly, the guidance means that its wholesome progress is right here to remain.
TSMC now expects to complete 2024 with a 30% improve in income, up from its prior expectation of mid-20% progress. Extra particularly, the midpoint of TSMC’s income steering of $26.5 billion for the present quarter would translate right into a year-over-year bounce of 35%. This may very well be nice information for Apple traders. Let us take a look at the explanation why.
The A18 and A18 Professional processors utilized in Apple’s newest iPhone 16 fashions are manufactured utilizing TSMC’s second-generation 3-nanometer (nm) course of node. Stories in regards to the gross sales of the most recent iPhones have been blended, with some suggesting that the units aren’t promoting in addition to Apple had hoped for, whereas different stories point out that the demand stays stable.
TSMC’s newest outcomes give us extra readability in regards to the state of iPhone demand. The foundry big factors out that the gross sales of chips manufactured utilizing its 3nm course of node accounted for 20% of its income final quarter. That was up from simply 6% in the identical quarter final 12 months. In easier phrases, TSMC offered $4.7 billion price of 3nm chips in Q3 as in comparison with simply over $1 billion in the identical quarter final 12 months.
Funding financial institution TD Cowen estimates that Apple is paying $45 for every A18 Professional processor used within the iPhone 16 Professional fashions, up from $40 final 12 months. Buyers ought to word that Apple wasn’t utilizing TSMC’s 3nm expertise node throughout all of its iPhone fashions final 12 months. The iPhone 15 and the iPhone 15 had been utilizing processors based mostly on TSMC’s 4nm node, whereas the Professional variations used the 3nm expertise.
This time, all of Apple’s iPhone fashions are powered by processors manufactured utilizing TSMC’s 3nm course of node, which is among the explanation why TSMC’s income from this expertise has elevated remarkably on a year-over-year foundation. There is a sturdy probability that Apple was the one buyer for TSMC’s 3nm chips final quarter. That is as a result of TSMC’s different key buyer, Nvidia, has been utilizing its 4nm course of node to fabricate its graphics course of items (GPUs).
Assuming Apple bought all of TSMC’s 3nm chips at a mean worth of $45 per chip, it could have procured round 100 million processors. That is round 10% greater than Wedbush Securities’ estimate that Apple could be manufacturing 90 million units of the iPhone 16 in 2024.
In the meantime, J.P. Morgan factors out that the lead instances of the Professional fashions of the iPhone 16 stay excessive at over 3 weeks. So, if Apple is witnessing lengthy lead instances regardless of a rise in manufacturing from final 12 months’s ranges of 80 million items, there’s a likelihood that its new units are witnessing sturdy end-market demand.
One cause that is more likely to be the case is due to an estimated put in base of 300 million iPhones that have not been upgraded in 4 years. On condition that Apple is now going to supply generative synthetic intelligence (AI) options on its smartphones, this big put in base of customers will now have a powerful cause to improve to Apple’s new iPhones.
As such, do not be shocked to see Apple’s iPhone gross sales figures remaining strong within the closing quarter of the 12 months. Furthermore, the massive put in base of ageing units ought to set off an improve cycle which ought to enable the tech big to report stronger progress within the coming 12 months and past. This in all probability explains why analysts have elevated their income expectations from Apple for the following couple of years.
Consensus estimates recommend that Apple ended its just lately concluded fiscal 2024 (which ended on Sept. 30) with $390 billion in income, which might be a rise of lower than 2% from the earlier 12 months. Nonetheless, the chart above tells us that Apple’s high line is predicted to extend within the excessive single digits over the following couple of fiscal years.
All of this means that now could also be an excellent time to purchase shares of Apple earlier than it goes on an additional bull run following the 22% beneficial properties that it has clocked thus far this 12 months.
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JPMorgan Chase is an promoting companion of The Ascent, a Motley Idiot firm. Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Apple, JPMorgan Chase, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot has a disclosure policy.
