TSMC 1Q26: Continued Front-end and Back-end Capacity Shortages; Upward Revision of 2027 CoWoS Forecast

End Demand Divergence and Process Node Dynamics

While short-term demand for smartphones and PCs remains weak, strong AI demand continues to drive the company’s earnings growth. Surging memory prices have suppressed consumer end demand, leading consumer electronics customers such as Qualcomm and MediaTek to significantly cut orders for the N5/N4 process.

On the other hand, N3 capacity remains tight: strong demand for TPUs from Broadcom and MediaTek is expected to keep N3 capacity constrained until at least next year.

Regarding N2, Apple will not slow down its aggressive adoption of advanced nodes, and for the first time, Qualcomm and MediaTek will adopt the latest process node concurrently with Apple in the N2 era. Given the power and performance requirements of GPGPUs and AI ASICs, the adoption of advanced nodes is becoming increasingly proactive; therefore, we expect a rapid ramp-up for the N2 process.

CoWoS Capacity Expansion

Previously, we estimated TSMC’s CoWoS capacity to reach 150-160k by the end of 2027. However, recent checks indicate that CoWoS capacity could likely reach 170-180k by year-end 2027, suggesting that the extreme shortage of advanced packaging capacity may slightly ease. Following the upward revision of our CoWoS capacity forecast, we have also raised our 2027 TPU shipment estimate from 5.5-6.5 million units (including Broadcom and MediaTek versions) to 7 million units. It should be noted that even with this upward revision, we believe shipments will still fall short of Google’s demand forecast of 12 million units.