Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) Q1 2025 Earnings Call Transcript
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Overview
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.
Key Financial Performance
EPS $2.12 (up from $2.03 expectations)
Revenue Decreased 3.4% sequentially in NT dollar or 5.1% in U.S. dollars due to smartphone seasonality, partially offset by growth in AI-related demand.
Gross Margin Decreased 0.2 percentage points sequentially to 58.8%, primarily due to earthquake impact and start of overseas dilution, partially offset by cost improvement efforts.
Operating Margin Decreased 0.5 percentage points sequentially to 48.5%.
Cash and Marketable Securities TWD2.7 trillion or US$81 billion.
Cash from Operations Generated about TWD626 billion.
CapEx Spent TWD331 billion.
Cash Dividend Distributed TWD104 billion for second quarter 2024.
Accounts Receivable Turnover Days Increased one day to 28 days.
Days of Inventory Increased three days to 83 days, primarily due to ramping of new overseas fabs.
Operating Highlights
Revenue Contribution by Technology: 3-nanometer process technology contributed 22% of wafer revenue in Q1 2025, while 5-nanometer and 7-nanometer accounted for 36% and 15%, respectively. Advanced technologies (7-nm and below) accounted for 73% of wafer revenue.
Revenue Contribution by Platform: HPC increased 7% quarter-over-quarter to account for 59% of Q1 revenue. Smartphone decreased 22% to account for 28%. IoT decreased 9% to account for 5%. Automotive increased 14% to account for 5%, and DCE increased 8% to account for 1%.
Operational Recovery: Despite the January 21 earthquake and aftershocks, TSMC worked diligently to recover much of the lost production, resulting in revenue slightly above the midpoint of guidance.
Cost Improvement Efforts: Gross margin decreased 0.2 percentage points to 58.8%, primarily due to earthquake impact and overseas dilution, but was partially offset by cost improvement efforts.
CapEx: In Q1 2025, TSMC spent TWD331 billion (approximately USD 10.1 billion) in CapEx.
Risk or Challenges
Revenue Impact: First quarter revenue decreased 5.1% in U.S. dollars due to smartphone seasonality, indicating vulnerability to market fluctuations.
Earthquake Impact: The January 21 earthquake and aftershocks significantly impacted production, leading to a decrease in gross margin by 0.2 percentage points.
Operating Margin: Operating margin decreased by 0.5 percentage points to 48.5%, reflecting challenges in maintaining profitability amid external pressures.
Supply Chain Challenges: The ramping of new overseas fabs contributed to an increase in days of inventory by three days to 83 days, indicating potential supply chain inefficiencies.
Tax Liabilities: Current liabilities increased due to accrued income tax payables, which may affect cash flow management.
Guidance & Outlook
Revenue Contribution by Technology: 3-nanometer process technology contributed 22% of wafer revenue in Q1 2025, while 5-nanometer and 7-nanometer accounted for 36% and 15%, respectively. Advanced technologies (7-nanometer and below) accounted for 73% of wafer revenue.
Revenue Contribution by Platform: HPC increased 7% quarter-over-quarter to account for 59% of Q1 revenue. Smartphone decreased 22% to account for 28%. IoT decreased 9% to account for 5%. Automotive increased 14% to account for 5%, and DCE increased 8% to account for 1%.
CapEx: Spent TWD331 billion in CapEx during Q1 2025.
Q2 2025 Revenue Guidance: Revenue guidance for Q2 2025 was not explicitly stated in the provided transcript.
Gross Margin Outlook: Gross margin decreased 0.2 percentage points sequentially to 58.8%, with expectations of continued impact from the earthquake and overseas dilution.
Operating Margin Outlook: Operating margin decreased 0.5 percentage points sequentially to 48.5%.
EPS: First quarter EPS was TWD13.94.
Cash and Marketable Securities: Ended Q1 with cash and marketable securities of TWD2.7 trillion or US$81 billion.
Shareholder Return Plan
Cash Dividend for Q2 2024: Distributed TWD104 billion for second quarter 2024 cash dividend.
Share Repurchase Program: None
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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