TSMC Earnings Call: AI Demand and U.S. Expansion

Taiwan Semiconductor Manufacturing ((TSM)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call of Taiwan Semiconductor Manufacturing (TSMC) paints a mixed picture, reflecting both optimism and caution. The company is in a strong position due to robust AI demand and strategic expansion plans, particularly in the United States. However, concerns about revenue declines in the first quarter, margin dilution from overseas expansion, and decreased revenues from smartphones and IoT devices were also highlighted. Despite these challenges, TSMC maintains a strong financial footing and has set an optimistic outlook for the second quarter.

Strong AI Demand and Revenue Growth

TSMC continues to experience robust growth in AI-related demand, with expectations that revenue from AI accelerators will double by 2025. The company is actively working to double its CoWoS capacity to meet this strong demand, underscoring its commitment to maintaining leadership in the AI sector.

Revenue Guidance for Q2 2025

For the second quarter of 2025, TSMC projects revenue to be between $28.4 billion and $29.2 billion. This forecast represents a 13% sequential increase and a 38% year-over-year increase at the midpoint, signaling strong growth expectations despite recent challenges.

Advanced Technology Contributions

Advanced technology continues to be a significant contributor to TSMC’s revenue. In the first quarter, the 3-nanometer process technology accounted for 22% of wafer revenue, while the 5-nanometer and 7-nanometer technologies contributed 36% and 15%, respectively. Overall, advanced technologies made up 73% of wafer revenue, highlighting TSMC’s technological prowess.

Expansion Plans in the U.S.

TSMC has announced an ambitious $100 billion investment plan to expand its capacity in Arizona. This includes the construction of three additional wafer manufacturing fabs and a major R&D center, reflecting the company’s strategic focus on strengthening its presence in the U.S. market.

Strong Financial Position

Despite the challenges faced in the first quarter, TSMC ended the period with a robust financial position, holding cash and marketable securities worth approximately $81 billion. This strong financial base provides a solid foundation for future investments and expansions.

Revenue Decline in Q1 2025

TSMC experienced a revenue decline in the first quarter of 2025, with a 3.4% sequential decrease in NT dollars and a 5.1% decrease in U.S. dollars. This decline was primarily due to smartphone seasonality, although AI-related demand provided some offsetting growth.

Margin Dilution Concerns

The company’s gross margin decreased slightly by 0.2 percentage points to 58.8% in the first quarter, impacted by earthquake effects and costs associated with overseas expansion. TSMC anticipates that margin dilution from its overseas fabs will become more pronounced throughout the year.

Smartphone and IoT Revenue Decline

In the first quarter, TSMC saw a significant decline in smartphone revenue, which fell by 22%, and IoT revenue, which decreased by 9% quarter-over-quarter. These declines reflect broader market trends and seasonal factors impacting these segments.

Forward-Looking Guidance

Looking ahead, TSMC has provided guidance for the second quarter of 2025, projecting revenue between $28.4 billion and $29.2 billion. The company expects gross margins to be between 57% and 59%, with operating margins anticipated to be between 47% and 49%. Despite potential margin impacts from overseas expansions, TSMC remains confident in achieving a long-term gross margin of 53% or higher, supported by its technological leadership and strategic growth initiatives.

In conclusion, TSMC’s earnings call highlights a company navigating through both opportunities and challenges. While the strong demand for AI and strategic expansions offer promising growth prospects, the company must address revenue declines and margin pressures. Nevertheless, TSMC’s robust financial position and optimistic guidance for the upcoming quarter underscore its resilience and strategic foresight in the semiconductor industry.