Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, is a key player in the tech sector as it manufactures chips for several companies that serve multiple industries, ranging from smartphones to computers to data centers to the Internet of Things (IoT).
That's the reason why the Taiwan-based foundry's quarterly results can be used as a barometer to gauge the health of other companies as well. For example, Apple (NASDAQ: AAPL) is reportedly the top customer of TSMC's chips, accounting for 25% of the latter's top line. Apple taps TSMC's fabrication facilities to manufacture the processors used in iPhones and iPads.
That's why TSMC's terrific third-quarter results, which were released on Oct. 17, tell us that the business of its top customer is likely to be in solid shape. The Taiwanese company reported a 36% year-over-year increase in revenue to $23.5 billion, along with a 54% jump in earnings. Its results bested Wall Street's expectations, and more importantly, the guidance suggests that its healthy growth is here to stay.
TSMC now expects to finish 2024 with a 30% increase in revenue, up from its prior expectation of mid-20% growth. More specifically, the midpoint of TSMC's revenue guidance of $26.5 billion for the current quarter would translate into a year-over-year jump of 35%. This could be great news for Apple investors. Let's look at the reasons why.
The A18 and A18 Pro processors used in Apple's latest iPhone 16 models are manufactured using TSMC's second-generation 3-nanometer (nm) process node. Reports about the sales of the latest iPhones have been mixed, with some suggesting that the devices aren't selling as well as Apple had hoped for, while other reports indicate that the demand remains solid.
TSMC's latest results give us more clarity about the state of iPhone demand. The foundry giant points out that the sales of chips manufactured using its 3nm process node accounted for 20% of its revenue last quarter. That was up from just 6% in the same quarter last year. In simpler terms, TSMC sold $4.7 billion worth of 3nm chips in Q3 as compared to just over $1 billion in the same quarter last year.
Investment bank TD Cowen estimates that Apple is paying $45 for each A18 Pro processor used in the iPhone 16 Pro models, up from $40 last year. Investors should note that Apple wasn't using TSMC's 3nm technology node across all of its iPhone models last year. The iPhone 15 and the iPhone 15 were using processors based on TSMC's 4nm node, while the Pro versions used the 3nm technology.