Sales are projected to decline for Alchip due to a decrease in demand from a major client.
Title: Alchip Technologies Faces Temporary Revenue Dip but Forecasts Future Growth in Advanced Chip Design
By: Lisa Wang, Staff Reporter
Alchip Technologies Ltd (世芯), a player in the application-specific integrated circuit (ASIC) design scene, specializing in server chips, is bracing for a decline in revenue this year. This mini-slump comes as a result of dwindling demand for 5-nanometer artificial intelligence (AI) chips from a significant North American client, a company executive disclosed yesterday.
This marks the first contraction in Alchip's revenue since they've enjoyed a string of growth over the past few years. The reason? Cloud-service providers have been axing their reliance on Nvidia Corp's pricy AI chips and opting to build their own AI accelerators by outsourcing chip design instead.
The 5-nanometer chip was expected to be a game-changer, as the lifecycle of their 7-nanometer AI accelerator nears its end this year. Unfortunately, those dreams were nipped in the bud, with the company witnessing a weakening first-quarter revenue, dipping 21 percent sequentially or 4.4 percent year-on-year to an impressive US$318.74 million.
"We anticipate a subdued revenue outlook for the rest of the year," Alchip's Chief Financial Officer Daniel Wang (王德善) said at a virtual earnings conference. "The demand for 5-nanometer AI accelerators appears to be cooling off, as the client has repeatedly postponed production."
But Alchip stays optimistic about "significant revenue growth" from their 3-nanometer chip, set to hit volume production early next year.
The company also boasts several new design projects making use of 2-nanometer process technology, indicating a promising growth trajectory moving forward, according to Wang.
"We're still bullish about the AI market. As a market leader, we anticipate outpacing the compound annual growth rate of the high-performance computing [HPC] segment from 2025 to 2027," Alchip CEO Johnny Shen (沈翔霖) said.
Interestingly, 95 percent of Alchip's revenue last quarter stemmed from the HPC segment, up from 92 percent in the fourth quarter last year.
Last month's revenue plummeted 21.5 percent year-on-year and 12.95 percent sequentially to NT$3.15 billion (approximately US$103.9 million). Despite the sequential drop, net profit increased 13.9 percent year-on-year to US$44.42 million. Earnings per share dropped to NT$18.1 from NT$23 a quarter ago, but improved from NT$15.8 a year earlier.
Alchip attributes the surge in gross margin last quarter to a higher revenue contribution from its non-recurring engineering (NRE) business. They expect this trend to continue through the rest of the year, as NRE revenue upticks thanks to the increasing intricacy in chip designing and manufacturing, Wang said.
Looking ahead, Alchip's advanced chip design projects in 3-nanometer and 2-nanometer technologies promise robust growth in the following years. Factors driving this growth? A notable uptick in demand for 3-nanometer chip technologies, with industry titan TSMC expecting 22% of their revenue to stem from 3-nanometer technology in 2025[1].
For 2-nanometer technology, analysts project Apple's orders alone could reach NT$1 trillion (approximately $33 billion) in 2025, representing a 28% to 60% growth range over 2024[1]. The 2-nanometer process represents the most advanced manufacturing technology globally, utilizing nanosheet transistors rather than FinFETs, leading to a leap in chip performance and efficiency.
With TSMC dominating the foundry market and securing large orders in 3nm and 2nm chips, partner design firms like Alchip can expect significant revenue upside tied to these technology nodes as production ramps in 2025 and beyond[1]. The overall chip market is making a transition towards advanced packaging and integration, a trend that benefits companies like Alchip who develop intricate chip designs[5]. So, Alchip's temporary revenue dip may just be a mid-game hiccup in their long-term growth story.
- Despite a temporary revenue dip in technology products like 5-nanometer AI accelerators, Alchip Technologies remains optimistic about future growth in technology, specifically with their 3-nanometer and 2-nanometer chips.
- Alchip's revenue growth in the high-performance computing (HPC) segment, which made up 95% of their Q1 revenue, and the increasing demand for advanced technology nodes such as 3-nanometer and 2-nanometer, indicate a promising future in finance and technology for the company.
