Key Takeaways
1. TSMC reported record revenue of NT$933.79 billion ($31.81 billion) for April-June, a 38.6% increase from last year, and net profits rose by 60.7% to NT$398.27 billion ($13.57 billion).
2. The company achieved strong financial metrics with a gross margin of 58.6%, operating margin of 49.6%, and net margin of 42.7%, largely driven by advanced nodes, with 74% of wafer revenue from processes of 7 nanometers or finer.
3. Demand for AI and high-performance computing significantly contributed to TSMC’s success, with management expecting third-quarter revenue to rise between $31.8 billion and $33.0 billion, a potential 40% year-on-year increase.
4. Risks include potential U.S. semiconductor tariffs, a projected 12% increase in the Taiwan dollar in 2025, and softer iPhone sales, which could affect profitability in the December quarter.
5. Despite geopolitical uncertainties and currency fluctuations, TSMC remains a critical player in the generative AI supply chain, with strong customer orders and a capital expenditure plan of $38-42 billion.
TSMC has reported its best performance ever in the April-June timeframe, with revenue climbing 38.6 percent from last year to reach NT$933.79 billion ($31.81 billion). This surge in revenue also propelled net profits up by 60.7 percent, bringing it to NT$398.27 billion ($13.57 billion). Diluted earnings stood at NT$15.36, which is equivalent to $2.47 per American depositary receipt.
Strong Financial Metrics
The company saw an expansion in gross margins to 58.6 percent, while the operating margin was recorded at 49.6 percent, and the net margin at 42.7 percent—figures that are quite rare among major chip manufacturers. Advanced nodes played a critical role in this success: 3-nanometer wafers accounted for 24 percent of quarterly sales, 5-nanometer made up 36 percent, and 7-nanometer contributed 14 percent. This means that processes of 7 nanometers or finer represented a significant 74 percent of wafer revenue.
Positive Outlook Amid Challenges
Wendell Huang, the Chief Financial Officer, attributed this success to the “continued strong AI and high-performance computing demand.” Meanwhile, C.C. Wei, the Chief Executive, mentioned that Nvidia’s newly approved H20 shipments to China is “very positive news” for both companies. These factors led to a 17.8 percent increase in Q2 revenue compared to the previous quarter, even with a stronger Taiwan dollar.
Looking ahead, management anticipates third-quarter revenue to be between $31.8 billion and $33.0 billion, which is as much as a 40 percent increase year-on-year. However, they have adjusted their gross margin forecast lower to a range of 55.5-57.5 percent and operating margin to 45.5-47.5 percent. The full-year revenue forecast has been upgraded to approximately 30 percent growth in U.S.-dollar terms. However, the appreciation of the Taiwan dollar and the initial expenses related to new fabs in Arizona and Japan could pressure profitability.
Risks and Future Considerations
Possible semiconductor-specific tariffs in the U.S., a projected 12 percent increase in the Taiwan dollar in 2025, and softer iPhone sales pose risks for the December quarter. Despite these issues, TSMC has maintained its capital expenditure plan at $38-42 billion and reports that customer orders remain strong. Company stocks, which surged by about 80 percent last year, have only increased by 5 percent year-to-date due to concerns surrounding policy and currency fluctuations.
In the current landscape, TSMC is a key player in the generative AI supply chain, and for the time being, the demand for its cutting-edge production capabilities significantly overshadows macroeconomic and geopolitical uncertainties. Whether tariffs and exchange-rate issues will impact the firm’s leading margins will likely become clearer as 2025 approaches.
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