Taiwan Semiconductor Manufacturing Co Ltd (TSM) (Q2 2025) Earnings Call Highlights: Robust ...
Gross Margin: Decreased 0.2 percentage points sequentially to 58.6%.
Operating Margin: Increased 1.1 percentage points sequentially to 49.6%.
Earnings Per Share (EPS): TWD15.36, up 60.7% year over year.
Return on Equity (ROE): 34.8%.
3-nanometer Technology Revenue: Contributed 24% of wafer revenue.
5-nanometer Technology Revenue: Accounted for 36% of wafer revenue.
7-nanometer Technology Revenue: Accounted for 14% of wafer revenue.
Advanced Technologies Revenue: Accounted for 74% of wafer revenue.
HPC Revenue: Increased 14% quarter over quarter, accounting for 60% of total revenue.
Smartphone Revenue: Increased 7%, accounting for 27% of total revenue.
IoT Revenue: Increased 14%, accounting for 5% of total revenue.
Automotive Revenue: Remained flat, accounting for 5% of total revenue.
DCE Revenue: Increased 30%, accounting for 1% of total revenue.
Cash and Marketable Securities: TWD2.6 trillion or USD90 billion.
Accounts Receivable Turnover Days: Decreased by 5 days to 23 days.
Days of Inventory: Decreased by 7 days to 76 days.
Cash from Operations: TWD497 billion.
Capital Expenditures (CapEx): TWD297 billion or USD9.6 billion.
Cash Dividend: TWD117 billion for third quarter '24.
Third Quarter Revenue Guidance: Expected between USD31.8 billion and USD33 billion.
Third Quarter Gross Margin Guidance: Expected between 55.5% and 57.5%.
Third Quarter Operating Margin Guidance: Expected between 45.5% and 47.5%.
2025 Capital Budget: Between USD38 billion and USD42 billion.
Warning! GuruFocus has detected 9 Warning Signs with BOM:534600.
Release Date: July 17, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Second-quarter revenue increased by 17.8% sequentially in US dollar terms, reaching $30.1 billion, exceeding guidance.
Advanced technologies (7-nanometer and below) accounted for 74% of wafer revenue, showcasing strong demand for cutting-edge processes.
TSMC's AI and HPC-related demand remains robust, contributing significantly to revenue growth.
The company plans to invest $165 billion in advanced semiconductor manufacturing in the US, indicating strong future growth potential.
TSMC's N2 and A16 technologies are on track, with N2 expected to enter volume production in the second half of 2025, promising future revenue streams.
Negative Points
Gross margin decreased by 0.2 percentage points sequentially to 58.6%, impacted by unfavorable foreign exchange rates and overseas fab costs.
The company anticipates continued gross margin dilution from overseas fabs, with a forecasted impact of 2% to 4% annually over the next five years.
Foreign exchange rate fluctuations pose a significant risk, with a 1% appreciation of the NT dollar against the US dollar reducing gross margin by about 40 basis points.
TSMC's fourth-quarter revenue is expected to decline, reflecting a cautious outlook due to potential tariff impacts and macroeconomic uncertainties.
The company faces challenges in narrowing the supply-demand gap for advanced nodes like N3 and N5, indicating potential capacity constraints.
Q & A Highlights
Q: How is TSMC addressing the increasing demand for AI and data center applications, particularly regarding CoWoS capacity? A: C.C. Wei, Chairman and CEO, stated that AI demand is growing stronger, and TSMC is working to narrow the supply-demand gap for CoWoS. The company is focused on increasing capacity to meet this robust demand.
Q: What is TSMC's outlook on the impact of foreign exchange rates on profitability, and how does it plan to manage these effects? A: Wendell Huang, CFO, explained that foreign exchange rates significantly impact profitability. TSMC plans to manage these effects by leveraging other factors such as pricing and operational efficiencies to maintain a gross margin of 53% or higher.
Q: Can you provide insights into the N2 ramp and its expected revenue contribution? A: C.C. Wei mentioned that the N2 ramp profile is similar to N3, but revenue contribution will be higher due to increased demand from both smartphone and HPC customers. The ramp is constrained by capacity, but the pricing for N2 will reflect its value.
Q: How does TSMC plan to address the tight supply for N3 and N5 nodes, and what is the strategy for mature nodes? A: C.C. Wei noted that both N3 and N5 nodes are experiencing high demand and tight supply. TSMC is using its GigaFab cluster to adjust capacity between nodes. For mature nodes, TSMC focuses on specialty technologies like RF and CMOS image sensors to meet customer demand.
Q: What are TSMC's plans for overseas expansion, and how will this affect the company's overall strategy? A: C.C. Wei highlighted that overseas expansion is driven by customer demand and supported by government incentives. The expansion in the US focuses on leading-edge technology, while Japan and Germany focus on specialty technologies. These expansions are not expected to impact each other negatively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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