TSMC, the world's largest contract chipmaker, reported fourth-quarter revenue that easily beat market forecasts and hit its own expectations as it reaped the benefit of artificial intelligence demand.
TSMC will hold its quarterly investors meeting on January 16, where its insights into semiconductor market trends for 2025 and its gross margin sustainability will be of considerable interest.
The world's largest contract chipmaker has reported on Friday fourth-quarter revenue that easily beat market forecasts and hit its own expectations as it reaped the benefit of artificial intelligence demand.
Revenue in the October-December period of 2024 came in at T$868.42 billion ($26.36 billion), according to calculations, compared with an LSEG SmartEstimate of T$853.57 billion ($25.90 billion) drawn from 23 analysts.
That represents growth of 34.4% year-on-year, and compares with revenue of $19.62 billion in the year-ago period.
It is not a direct comparison as TSMC provides monthly revenue data only in Taiwan dollars, but gives quarterly revenue figures and its outlook on its quarterly earnings calls both in U.S. dollars.
Previous Quarter Review
TSMC’s net income was 325.3 billion New Taiwan dollars ($10.1 billion) over the July-September quarter, surpassing an LSEG estimate of NT$300.2 billion cited by Reuters.
Net revenue came in at $23.5 billion in the third quarter, up 36% year on year, with TSMC’s gross margin rising to 57.8% over July-September, compared with 54.3% in the same period of last year.
“Based on the current business outlook, we expect for our fourth-quarter revenue to be between $26.1 billion and $26.9 billion, which represents a 13% sequential increase or a 35% year-over-year increase at the midpoint,” TSMC Chief Financial Officer Wendell Huang said during an earnings call following the results release, according to a call transcript produced.
Q4 Results Outlook
Four Areas Merit Attention
TSMC's 4Q sales exceeded consensus of NT$852 billion, given the robust demand for its N3 and N5 nodes for AI- and smartphone-chip production. The company's gross margin is likely to expand to a two-year high of 58%, or more.
On the upcoming earnings call, four areas merit attention: First, the outlook for CoWoS advanced-packaging capacity build and revenue, which is likely to give insight into the expected strength for AI chip demand in the coming 12-18 months. Second, progress on the US Arizona fab's ramp-up, which is critical to meeting the onshoring chipmaking needs of Apple, Nvidia and others. Third, potential margin pressure from weaker demand in 7-, 16-nm and larger mature nodes. Finally, capital-spending plans for 2025, which will signal TSMC’s confidence in the uptake of its next-generation N2 node.
2025 Semiconductor Outlook, Margin Sustainability
In 2023, TSMC reported revenue of US$69.3 billion, reflecting an 8.7% decline compared to the previous year. Growth accelerated for TSMC in December, capping 34% revenue growth for 2024. That compares with TSMC’s official target of a 30% annual rise, though that outlook was expressed in US dollar terms.
The semiconductor supply chain remains cautious about 2025. While AI is expected to continue its domination, with significant growth in AI servers, the recovery in PC and smartphone markets remains slow. Additionally, the automotive and IoT sectors are likely to remain flat, and emerging applications such as robotics and drones show limited growth potential.
Despite market uncertainties, TSMC and Nvidia maintain their dominant positions in the industry, with TSMC projected to achieve over 20% growth in annual revenue, setting new records.
Although the first quarter of 2025 is typically a slow season for the smartphone market and there is no anticipated lift for nodes above 7/6nm, TSMC's continued full utilization of 5/4nm and 3nm capacities means that the revenue decrease in the first quarter of 2025 is expected to be around 5%, still achieving a record high for the same period.
TSMC has revised its capital expenditure for 2024 down to slightly above US$30 billion. However, as it continues to advance processes below 2nm and develop CoWoS and SoIC advanced packaging technologies, alongside ongoing expansions in Taiwan and overseas locations, capital expenditures for 2025 are expected to reach US$35 billion to US$38 billion. This will also drive the advanced packaging and equipment supply chains to maintain profitability in 2025.
The Kumamoto plant is scheduled to begin mass production by the end of 2024, and the new US facility is expected to start production in the first half of 2025. This expansion has led to heightened market attention regarding how these new overseas plants may dilute gross margins.
TSMC previously stated that starting in 2025, overseas factories are estimated to impact gross margins by approximately 2-3%. Although initial profitability at these overseas sites is lower than that of Taiwanese facilities, improvements are expected over time.
Industry sources indicate that TSMC's gross margins face pressure due to the commencement of production at the 2nm node. In response, the company announced price increases for foundry services related to 5/4nm and 3nm technologies, as well as CoWoS, with pricing adjustments at Japanese and American facilities being significantly higher than those in Taiwan due to rising costs.
TSMC is also actively working to reduce equipment procurement prices. Through various cost-saving strategies, the company aims to maintain an annual gross margin within the range of 53-55%.
