Taiwan Semiconductor Manufacturing Company Limited (TSM) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a strong business outlook driven by robust demand in HPC and AI applications, a high CapEx guidance, and a positive gross margin trajectory. While management avoided specifics on some metrics, the overall sentiment is positive with high confidence in technology leadership and strategic expansions, such as in Arizona. The positive guidance and strategic plans outweigh the lack of specific details, suggesting a positive stock price movement.
Key Financial Performance
Revenue First quarter revenue increased 8.4% sequentially in NT and 6.4% sequentially in USD to USD 35.9 billion, driven by strong demand for leading-edge process technologies.
Gross Margin Gross margin increased 3.9 percentage points sequentially to 66.2%, primarily due to cost improvement efforts, a high capacity utilization rate, and a more favorable foreign exchange rate.
Operating Margin Operating margin improved 4.1 percentage points sequentially to 58.1%, attributed to operating leverage.
EPS (Earnings Per Share) First quarter EPS was TWD 22.08.
ROE (Return on Equity) ROE was 40.5% for the first quarter.
Revenue by Technology 3-nanometer process technology contributed 25% of wafer revenue, 5-nanometer accounted for 36%, and 7-nanometer accounted for 13%. Advanced technologies (7-nanometer and below) accounted for 74% of wafer revenue.
Revenue by Platform HPC increased 20% quarter-over-quarter to account for 61% of revenue. Smartphone decreased 11% to account for 26%. IoT increased 12% to account for 6%. Automotive decreased 7% to account for 4%. DCE increased 28% to account for 1%.
Cash and Marketable Securities Ended the first quarter with TWD 3.4 trillion (USD 106 billion).
Current Liabilities Increased by TWD 256 billion quarter-over-quarter, mainly due to TWD 129 billion increase in accrued liabilities and TWD 82 billion increase in accounts payable.
Accounts Receivable Turnover Days Flat at 26 days.
Days of Inventory Increased by 6 days to 80 days, reflecting the ramp-up of 2-nanometer technology and strong demand for 3-nanometer technology.
Cash Flow from Operations Generated TWD 699 billion in cash from operations during the first quarter.
Capital Expenditures (CapEx) Spent TWD 351 billion (USD 11.1 billion) in CapEx during the first quarter.
Cash Dividend Distributed TWD 130 billion for the second quarter 2025 cash dividend.
Cash Balance Increased by TWD 268 billion to TWD 3 trillion at the end of the quarter.
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Operating Highlights
3-nanometer process technology: Contributed 25% of wafer revenue in Q1 2026, with strong demand from smartphone and HPC AI applications. N3 gross margin expected to cross corporate average in H2 2026.
2-nanometer technology: Ramp-up reflected in increased inventory days. Initial ramp-up expected to dilute gross margin by 2%-3% for full year 2026.
A14 technology: Second-generation nanosheet transistor structure with performance and power benefits. Volume production scheduled for 2028.
Global N3 capacity expansion: New 3-nanometer fabs planned in Taiwan, Arizona, and Japan, with production starting between 2027 and 2028. Increased CapEx investment to meet AI application demand.
Mature node strategy: Focus on high-yield capacity for specialized technologies in Japan and Germany. Plans to wind down older fabs (Fab 2 and Fab 5) while optimizing capacity for leading-edge applications.
Financial performance: Q1 2026 revenue increased 6.4% sequentially to USD 35.9 billion. Gross margin improved to 66.2% due to cost improvements and high capacity utilization.
CapEx spending: 2026 capital budget expected to be USD 52-56 billion, with focus on supporting growth in 5G, AI, and HPC.
Supply chain resilience: Multi-source supply solutions and safety stock inventory in place for specialty chemicals and gases. No near-term impact expected from Middle East situation.
AI megatrend: Robust demand for leading-edge silicon driven by AI-related applications. Multiyear growth expected in semiconductor demand.
Overseas expansion: Overseas fabs expected to dilute gross margin by 2%-3% in early stages, widening to 3%-4% in later stages.
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Risk or Challenges
Gross Margin Dilution: The initial ramp-up of 2-nanometer technology and overseas fab expansions are expected to dilute gross margins by 2-3% in the early stages and 3-4% in the latter stages.
Material Supply Risks: The recent situation in the Middle East may lead to increased prices for certain chemicals and gases, potentially impacting profitability.
Energy Supply Risks: The Middle East situation raises concerns about energy supply stability, though the Taiwan government has secured LNG supply through May and is diversifying sourcing.
Rising Component Prices: Rising component prices, especially in consumer and price-sensitive markets, could impact demand and profitability.
Macroeconomic Uncertainties: The Middle East situation introduces further macroeconomic uncertainties, which could affect business planning and operations.
Capital Expenditure Risks: High levels of capital expenditures, projected at USD 52-56 billion for 2026, could strain financial resources if growth opportunities do not materialize as expected.
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Guidance & Outlook
Second Quarter 2026 Revenue: Expected to be between USD 39.0 billion and USD 40.2 billion, representing a 10% sequential increase or a 32% year-over-year increase at the midpoint.
Second Quarter 2026 Margins: Gross margin expected to be between 65.5% and 67.5%, operating margin between 56.5% and 58.5%. Tax rate for the quarter around 20%, with full-year tax rate expected between 17% and 18%.
Second Half 2026 Profitability: Gross margin dilution expected due to the ramp-up of 2-nanometer technology (2%-3% for the full year) and overseas fabs (2%-3% in early stages, widening to 3%-4% in later stages). N3 gross margin expected to cross over to corporate average in the second half of 2026.
2026 Revenue Growth: Full-year revenue expected to grow by above 30% in U.S. dollar terms, supported by robust demand for AI-related applications and leading-edge silicon.
2026 Capital Expenditures: Capital budget expected to be towards the high end of USD 52 billion to USD 56 billion range, driven by investments in 5G, AI, and HPC megatrends.
N2 Technology Ramp-Up: High-volume manufacturing started in Q4 2025 with good yield. N2 ramping successfully in Taiwan, supported by strong demand from smartphone and HPC AI applications.
N3 Technology Expansion: Global capacity expansion underway to meet strong AI application demand. New 3-nanometer fabs planned in Taiwan (2027), Arizona (2027), and Japan (2028).
A14 Technology Development: Volume production scheduled for 2028. Expected to deliver 10%-15% speed improvement or 25%-30% power improvement compared to N2, with close to 20% chip density gain.
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Shareholder Return Plan
Cash Dividend Distribution: Distributed TWD 130 billion for second quarter 2025 cash dividend.
Commitment to Dividend Growth: TSMC remains committed to a sustainable and steadily increasing cash dividend per share on both annual and quarterly basis.
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Key Q&A
Q:What applications are driving strong business for 3-nanometer technology and what is the gross margin outlook for this node?
A:The applications driving strong business for 3-nanometer technology are HPC AI applications. The gross margin for 3-nanometer is expected to reach and cross the corporate gross margin level in the second half of this year, and after full depreciation, the gross margins are generally very high.
Q:What gives TSMC the confidence to revise its CapEx guidance to the high end of $52 billion to $56 billion?
A:The demand is very robust, especially from HPC and AI applications. TSMC is working hard to speed up and pull in equipment to meet the increasing demand, which is why the CapEx guidance is towards the high end.
Q:How long is the supply constraint for leading-edge capacity expected to last, and what is TSMC's strategy to address it?
A:The supply constraint is expected to remain very tight until 2027 due to the time required to build and ramp up new fabs. TSMC is building three new N3 fabs and working with suppliers to speed up construction and equipment procurement.
Q:What is TSMC's perspective on competition from initiatives like Terafab and its strategy to win back customers?
A:TSMC views competitors like Intel and Tesla as formidable but emphasizes that the foundry game requires technology leadership, manufacturing excellence, customer trust, and service. TSMC is confident in its technology position and is working hard to capture every piece of business possible.
Q:What is TSMC's strategy to address competition in advanced packaging and larger reticle size chips?
A:TSMC is supplying the largest reticle size packaging and is developing technologies like CoWoS and CoPoS to meet customer demand. TSMC is also building a CoPoS pilot line and working on System on Wafer technology to provide the best options for customers.
Q:Will TSMC provide long-term CapEx guidance, and how does it view equipment supply challenges?
A:TSMC does not provide specific long-term CapEx guidance but expects CapEx in the next three years to be significantly higher than the past three years. TSMC works closely with suppliers like ASML and Applied Materials to address equipment supply challenges.
Q:How does TSMC view capital intensity and revenue growth versus CapEx growth in the coming years?
A:TSMC expects revenue growth to outpace CapEx growth in the next several years, maintaining a steady capital intensity level without a sudden surge.
Q:What is TSMC's outlook for 2026 revenue growth and the impact of memory price hikes on demand?
A:TSMC sees strong growth in high-end smartphones despite some softness in the PC and smartphone markets due to memory price hikes. The company will provide more precise guidance in July.
Q:Has TSMC's view on long-term margin structure changed given strong demand and AI trends?
A:TSMC has revised its long-term gross margin target to 56% and higher through the cycle, with an ROE target of high 20%. The company continuously evaluates its long-term planning.
Q:What is TSMC's plan for its Arizona fab expansion and its profitability outlook?
A:TSMC plans to build more fabs in Arizona to meet multiyear demand from leading-edge U.S. customers. The company is confident in improving the cost structure and making good progress.
Q:Does TSMC believe its current profitability fully reflects its value, and what is its pricing strategy?
A:TSMC believes in growing together with its customers and views them as partners. The company focuses on ensuring customer success and earning its value without dramatic pricing changes.
Q:Will TSMC revise its AI accelerator revenue CAGR guidance to include CPUs?
A:TSMC currently does not include CPUs in its AI accelerator revenue calculation due to difficulty in identifying CPU usage. The company may consider revising this in the future.
Q:How does TSMC plan to win back specific AI-related business from competitors?
A:TSMC is working with customers on next-generation products and is confident in its technology position. The company aims to capture every piece of business possible.
Q:What is TSMC's strategy for advanced packaging and addressing technical challenges like warpage?
A:TSMC is developing advanced packaging technologies like SoIC and CoPoS to address challenges such as warpage and thermal limitations. The company is confident in solving these issues through engineering expertise.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numerical details for the gross margin outlook of 3-nanometer technology after full depreciation, long-term CapEx guidance, and the exact timeline for meeting supply-demand balance. Additionally, they did not provide historical AI revenue data including CPUs or specific plans to win back certain AI-related business from competitors.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI application
Fab inch
HPC AI
LNG supply
Middle East
addition situation
assessment
capacity optimization
chain
chemical gas
demand edge
demand nanometer
edge process
effort capacity
energy supply
factor
gain
government LNG
hand
inch fab
increase TWD
node TSMC
outlook USD
point improvement
position
productivity
ramp nanometer
rate cost
rate exchange
rate margin
situation Middle
tax rate
technology differentiation
term supply
utilization rate
wafer output
TSM Transcript
Taiwan Semiconductor Manufacturing Company Limited (TSM) Q1 2026 Earnings Call Transcript
Positive4-16
The earnings call reflects a strong business outlook driven by robust demand in HPC and AI applications, a high CapEx guidance, and a positive gross margin trajectory. While management avoided specifics on some metrics, the overall sentiment is positive with high confidence in technology leadership and strategic expansions, such as in Arizona. The positive guidance and strategic plans outweigh the lack of specific details, suggesting a positive stock price movement.
Taiwan Semiconductor Manufacturing Company Limited (TSM) Q3 2025 Earnings Call Transcript
Positive10-16
The earnings call reflects strong financial performance with record revenue growth, robust cash flow, and optimistic guidance for AI demand. Despite some concerns on margin dilution and vague responses in the Q&A, the overall sentiment is positive due to strong demand in AI and advanced technologies, coupled with a solid shareholder return plan. The optimistic guidance for AI and technology advancements outweigh potential risks, suggesting a positive stock price movement.
Taiwan Semiconductor Manufacturing Company Limited (TSM) Q2 2025 Earnings Call Transcript
Positive7-17
The earnings call reveals strong financial performance and optimistic guidance, with a 13% sequential revenue increase and high gross margins. The Q&A section highlights robust AI demand, strategic investments, and expansion plans, despite some uncertainties. These factors, along with a stable shareholder return strategy, suggest a positive stock price movement in the short term.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) Q1 2025 Earnings Call Transcript
Unknown4-18
The earnings call reflects mixed signals: strong AI demand and a slight EPS beat are positive, but revenue decline and margin pressure due to external factors (earthquake, overseas expansion) are concerning. Q&A highlighted demand strength but also management's evasiveness on certain risks. No explicit Q2 guidance was given, which can cause uncertainty. The absence of a share repurchase plan and increased inventory days further contribute to a neutral outlook. Without market cap data, a neutral prediction is prudent, considering both positive and negative elements.
TSM Report
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