TSMC Earnings Call Highlights Robust Growth Amid Challenges

Taiwan Semiconductor Manufacturing ((TSM)) has held its Q2 earnings call. Read on for the main highlights of the call.

During Taiwan Semiconductor Manufacturing Company’s recent earnings call, the sentiment was largely positive, driven by strong revenue growth from advanced technologies and platforms like HPC and IoT. However, the company acknowledged challenges such as foreign exchange headwinds and margin dilution from overseas fabs. Despite these hurdles, the long-term outlook remains optimistic due to robust AI and HPC demand.

Strong Revenue Growth

The company reported a significant increase in revenue, with an 11.3% sequential growth in NT and a 17.8% sequential growth in USD, reaching TWD 30.1 billion. This exceeded the second quarter guidance, showcasing the company’s strong performance in the market.

Record EPS and ROE

TSMC achieved a record second quarter EPS of TWD 15.36, marking a 60.7% year-over-year increase. The return on equity also reached an impressive 34.8%, reflecting the company’s efficient use of shareholder funds.

High Demand for Advanced Technologies

Advanced technologies continue to drive TSMC’s success, with the 3-nanometer process technology contributing 24% of wafer revenue. The 5-nanometer and 7-nanometer technologies accounted for 36% and 14% of wafer revenue, respectively. Overall, advanced technologies made up 74% of the company’s wafer revenue.

Strong Platform Growth

The company experienced strong platform growth, with HPC revenue increasing by 14% quarter-over-quarter and accounting for 60% of second quarter revenue. IoT revenue also saw a 14% increase, highlighting the growing demand in these sectors.

Positive AI and HPC Outlook

The demand for AI and HPC-related technologies remains strong, with TSMC expecting a full-year revenue growth of around 30% in USD terms. This positive outlook underscores the company’s strategic focus on these high-growth areas.

Decrease in Gross Margin

Despite the revenue growth, TSMC’s gross margin decreased by 0.2 percentage points sequentially to 58.6%. This decline was attributed to unfavorable foreign exchange rates and margin dilution from overseas fabs.

Foreign Exchange Headwinds

The appreciation of the NT dollar negatively impacted the second quarter revenue by about 4.4% in NT and gross margin by approximately 180 basis points. This headwind poses a challenge to the company’s financial performance.

Overseas Fab Margin Dilution

Margin dilution from overseas fabs, particularly those in Arizona and Kumamoto, is expected to continue impacting gross margins by 2% to 4% annually over the next five years. This ongoing challenge requires strategic management to mitigate its effects.

Fourth Quarter Revenue Concerns

The company expressed concerns about potential revenue decline in the fourth quarter due to macroeconomic uncertainties and tariffs. This cautious guidance reflects the company’s prudent approach amidst external challenges.

Forward-Looking Guidance

Looking ahead, TSMC provided guidance for the third quarter, projecting revenue between TWD 31.8 billion and USD 33 billion, representing an 8% sequential increase and a 38% year-over-year increase at the midpoint. The company expects a gross margin between 55.5% and 57.5% and an operating margin ranging from 45.5% to 47.5%. Despite challenges from foreign exchange rates and overseas fab margin dilution, TSMC remains committed to leveraging its manufacturing technology leadership to achieve a long-term gross margin of 53% or higher.

In summary, TSMC’s earnings call reflected a positive sentiment with strong revenue growth driven by advanced technologies and platforms. While challenges such as foreign exchange headwinds and margin dilution from overseas fabs persist, the company’s forward-looking guidance and strategic focus on AI and HPC demand provide a promising outlook.