The very aggressive 2021 capex forecast that TSMC (TSM) shared in its Q4 report on Thursday might be a by-product of both expected demand from current major clients and expectations of large future orders from a well-known chip giant.
As usual, TSMC's Q4 sales ($12.68 billion, up 22% annually) were already known via monthly sales reports. And with top customers such as Apple (AAPL) , AMD (AMD) , Nvidia (NVDA) , Qualcomm (QCOM) and Mediatek seeing pretty healthy demand right now, TSMC's Q1 guidance for revenue of $12.7 billion to $13 billion -- up 23%-26% annually and above a $12.3 billion FactSet consensus -- wasn't a total shock, either.
What was surprising was TSMC's decision to set a $25 billion to $28 billion capex budget. That's far above TSMC's reported 2020 capex of $17.2 billion, and at its midpoint is more than 150% above reported 2018 capex of $10.5 billion. It's also far above Intel's (INTC) 2020 capex budget of $14.2 billion to $14.5 billion, and easily tops the $20 billion to $22 billion range that TSMC was recently reported to be thinking about setting.
In addition, TSMC CFO Jen-Chau Huang suggested that -- with TSMC now expecting its revenue to grow at a 10% to 15% compound annual rate (CAGR) from 2020 to 2025 -- his firm's capex will remain elevated beyond 2021.
Chip equipment stocks are naturally taking the news pretty well. Applied Materials (AMAT) , KLA (KLAC) and Lam Research (LRCX) are all up more than 6% in Thursday trading as of the time of this article, and several other industry names are up over 5%. TSMC, meanwhile, is up 8% to new highs.
With reports already swirling about Intel holding talks with TSMC and Samsung about potentially using one or both of the foundries to make some of its most advanced CPUs, TSMC's 2021 capex budget can't help but heighten speculation that the company expects major orders from Intel over the next couple of years. And some of the responses that TSMC execs gave on its Q4 earnings call to analyst questions didn't exactly cool such speculation.
When asked about whether TSMC's share of x86 CPU production -- a market that Intel and AMD control between them -- will rise as it rolls out its 3-nanometer (3nm) process node, which is set to enter volume production in the second half of 2022, IR chief Jeff Su said that TSMC's expects its "exposure to x86 continue to increase" with 3nm. CEO C.C. Wei then jumped in and added that TSMC doesn't "specifically comment" on sales of particular types of products.
Later, when asked about TSMC's 2020-2025 growth outlook, Wei forecast TSMC's sales involving "HPC" applications (a catch-all term used by TSMC to cover sales of CPUs, GPUs and other PC and data center products) would grow faster than the company's total revenue growth.
Also, though this fits to an extent with how much of TSMC's capex has been historically spent, Huang said that the 80% of TSMC's 2021 capex that will be dedicated to advanced process nodes (including 3nm, 5nm and 7nm) will "primarily" be related to capacity arriving in future years.
Intel, which already uses TSMC to manufacture some of its less advanced chips and plans to lean on foundries to help reduce the fallout from the 7nm manufacturing setback it disclosed in July, said in October that it would share details about its manufacturing plans at the time of its Q4 report, which will arrive on Jan. 21.
With Intel announcing on Wednesday that former CTO Pat Gelsinger will be replacing Bob Swan as CEO on Feb. 15, it's possible that the company will hold off on formally making any major announcements about its manufacturing plans until Gelsinger takes charge. Also, Intel did say on Wednesday (without elaborating) that it has made "strong progress" with its 7nm node, which is roughly competitive with TSMC's recently-commercialized 5nm node and is now set to reach volume production around the same time as TSMC's 3nm node, and will share more on Jan. 21.
One could also add that even if Intel is set to place large orders with TSMC for wafers made using cutting-edge processes, the strength of the demand that TSMC is now seeing from current major clients -- fueled by growing sales of smartphones, cars, notebooks, game consoles, cloud servers, AI accelerators and much else -- also likely has something to do with its 2021 capex budget. This demand has already led TSMC to see wafer capacity tightness, particularly for mature process nodes.
But between recent media reports, the magnitude of TSMC's capex hike and TSMC's earnings call commentary, as well as the pressure that Intel is now facing from activist Dan Loeb, it definitely wouldn't be surprising to see Intel announce a high-end CPU outsourcing deal with TSMC sometime soon.