Taiwan Semiconductor's (TSM -0.64%) second quarter results were stellar. Revenue soared nearly 34% year over year, earnings per share jumped by 77%, and operating margin topped 60%. TSMC's 2nm process is ramping up, accounting for 3% of total wafer revenue so far, and advanced processes now generate more than three-quarters of total wafer revenue.
Booming demand for AI accelerators, CPUs, and other chips destined for AI data centers is maxing out TSMC's capacity, and the company is unable to keep pace. TSMC is ramping up capital spending, including a $100 billion commitment to its fabs in Arizona, but CEO C.C. Wei would only say during the earnings call that he expected "very strong" demand through 2030. It's unlikely that TSMC's supply will catch up with demand anytime soon.
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A golden opportunity for the competition
TSMC dominates the foundry market, but the best demand environment the company has ever seen is opening a door for Intel (INTC -2.68%) and Samsung (SSNLF +0.00%). With TSMC unable to fully meet demand, chip designers are actively looking elsewhere.
Both Intel and Samsung are making progress chipping away at TMSC's lead. Intel and its Intel 14A process node are involved in Elon Musk's Terafab project, and the Wall Street Journal reported in May that Apple reached a preliminary deal to use Intel for manufacturing some chips. Just this week, Intel inked a deal with Fortinet to design, manufacture, and package a custom chip on the Intel 4 process. Momentum appears to be building, and Intel's push into custom chip design is helping the cause.
Samsung is also winning major customers, signing a major deal with Tesla last year to manufacture AI chips over multiple years. Other companies, including AMD and Alphabet, are reportedly considering Samsung for future products. Samsung could be churning out AMD's server CPUs and Alphabet's TPUs if it wins those deals.
Both Intel and Samsung have distinct advantages that TSMC can't match. For Intel, it's U.S. government support, via an equity stake and its status as the only U.S.-based advanced logic semiconductor manufacturer. For Samsung, it's a memory chip manufacturing business that is currently printing cash. Wei pointed to both in response to an analyst's question about the competition.
TSMC isn't going to lose its crown, but the AI boom that's delivering record profits is also giving a serious boost to the competition.
NYSE: TSM
Key Data Points
Keep an eye on Intel
Intel is scheduled to report its quarterly results on Thursday. The company is unlikely to announce specific foundry customer wins, but management has previously said that it expects to lock down multiple design wins this year as it ramps the Intel 18A process and continues work on the upcoming Intel 14A process.
Apple is one of TSMC's largest customers, and all signs point to the iPhone giant tapping Intel for at least some chip manufacturing. TSMC doesn't have the capacity to fully meet demand, so it's not losing business per se. However, Apple having a second supplier gives the company more leverage when TSMC floats price increases.
While TSMC is printing record profits, the company's era of complete and utter dominance may be slowly coming to an end.
