Taiwan Semiconductor Manufacturing Company Limited (TSM) Q1 2025 Earnings Call Transcript
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Overview
The earnings call highlighted strong AI demand and a significant investment plan, but these were offset by a decline in revenue and margins, and vague management responses in the Q&A. The guidance for Q1 2025 indicates a revenue decline, and there was no new partnership announcement or shareholder return plan adjustment. The market is likely to remain cautious, resulting in a neutral stock price movement.
Key Financial Performance
Revenue US$25.5 billion, decreased 5.1% year-over-year due to smartphone seasonality, partially offset by growth in AI-related demand.
Gross Margin 58.8%, decreased 0.2 percentage points year-over-year primarily due to earthquake impact and start of overseas dilution.
Operating Margin 48.5%, decreased 0.5 percentage points year-over-year due to the same factors affecting gross margin.
EPS TWD13.94, year-over-year change not specified.
ROE 32.7%, year-over-year change not specified.
Cash from Operations TWD626 billion, year-over-year change not specified.
CapEx TWD331 billion, year-over-year change not specified.
Cash and Marketable Securities TWD2.7 trillion (US$81 billion), year-over-year change not specified.
Current Liabilities Increased by TWD135 billion quarter-over-quarter, mainly due to increase in accrued liabilities and income tax payables.
Accounts Receivable Turnover Days 28 days, increased by 1 day year-over-year.
Days of Inventory 83 days, increased by 3 days year-over-year due to ramping of new overseas fabs.
Capital Expenditures in USD US$10.06 billion, year-over-year change not specified.
Operating Highlights
New Product Introduction: TSMC introduced N2 and A16 technologies, with N2 expected to deliver 10-15% speed improvement or 20-30% power improvement, and A16 providing 8-10% speed improvement or 15-20% power improvement.
AI Demand Outlook: TSMC expects revenue from AI accelerators to double in 2025, driven by strong demand for AI GPUs, ASICs, and HBM controllers.
Market Expansion: TSMC announced an additional $100 billion investment plan to expand semiconductor manufacturing in Arizona, bringing total U.S. investment to $165 billion.
Global Footprint Expansion: Plans to build 11 wafer manufacturing fabs and four advanced packaging facilities in Taiwan, and a specialty technology fab in Dresden, Germany.
Operational Efficiency: Despite the January 21 earthquake, TSMC managed to recover much of the lost production, demonstrating operational resilience.
CapEx: TSMC's 2025 capital budget is projected between $38 billion and $42 billion, with 70% allocated for advanced process technologies.
Strategic Shift: TSMC is focusing on expanding its global manufacturing footprint while maintaining a commitment to profitable growth and shareholder returns.
Tax Strategy: TSMC anticipates a tax rate of around 20% for Q2 2025, dropping to 14-15% in the latter half of the year.
Risk or Challenges
Earthquake Impact: The January 21 earthquake and aftershocks caused production disruptions, leading to a decrease in gross margin by 0.2 percentage points and impacting overall revenue.
Overseas Fab Costs: The ramp-up of overseas fabs, particularly in Arizona and Kumamoto, is expected to result in gross margin dilution of 2% to 3% annually in the early stages, increasing to 3% to 4% in later stages.
Tariff Policies: Potential uncertainties and risks from tariff policies could impact customer behavior and end market demand, although no immediate changes have been observed.
Supply Chain Challenges: The need for geographic flexibility and government support for overseas expansions may pose challenges in managing supply chain dynamics.
Economic Factors: The company anticipates a mild recovery in end market segments, but remains cautious about external economic conditions affecting demand.
Guidance & Outlook
Investment Plan: TSMC announced an additional $100 billion investment plan to expand semiconductor manufacturing capacity in Arizona, bringing total investment in the U.S. to $165 billion.
CapEx for 2025: TSMC's capital budget for 2025 is expected to be between $38 billion and $42 billion, with 70% allocated for advanced process technologies.
AI Demand Outlook: TSMC expects revenue from AI accelerators to double in 2025, with a projected mid-40s percentage CAGR for AI-related revenue growth over the next five years.
Global Expansion: TSMC plans to build multiple fabs in Arizona, Japan, and Europe, enhancing its global footprint and capacity to meet customer demand.
N2 and A16 Technology: N2 technology is on track for volume production in the second half of 2025, with A16 technology scheduled for production in the second half of 2026.
Q2 2025 Revenue Guidance: TSMC expects Q2 2025 revenue to be between $28.4 billion and $29.2 billion, representing a 13% sequential increase.
Gross Margin Guidance: Gross margin for Q2 2025 is expected to be between 57% and 59%.
Operating Margin Guidance: Operating margin for Q2 2025 is expected to be between 47% and 49%.
Full-Year 2025 Revenue Growth: TSMC anticipates full-year 2025 revenue growth of close to mid-20s percent in U.S. dollar terms.
Tax Rate Guidance: Q2 2025 tax rate is expected to be around 20%, falling to 14%-15% in Q3 and Q4, with a full-year tax rate of 16%-17%.
Shareholder Return Plan
Second Quarter 2024 Cash Dividend: Distributed TWD104 billion for second quarter 2024 cash dividend.
2025 Capital Budget: Expected to be between US$38 billion and US$42 billion.
Additional Investment Plan: Announced an additional US$100 billion investment plan to expand capacity in Arizona.
Key Q&A
Earnings Word Cloud
TSM Transcript
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.
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.
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.
The earnings call highlighted strong AI demand and a significant investment plan, but these were offset by a decline in revenue and margins, and vague management responses in the Q&A. The guidance for Q1 2025 indicates a revenue decline, and there was no new partnership announcement or shareholder return plan adjustment. The market is likely to remain cautious, resulting in a neutral stock price movement.
TSM Report
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