TSMC Earnings Digest | The Return of the King!
Just now, $Taiwan Semiconductor Manufacturing(TSM)$ , the king of chip foundry, released its first-quarter earnings report, and it blew past everyone's expectations.
Look at those numbers:
1.Revenue
$18.87 billion with increasing 12.9% year-on-year. That reversed the slide we'd seen for the past four quarters and went above the management's guidance range of $18-18.8 billion, even topped analysts' consensus estimate of $17.95 billion!
Given that TSMC had already teased us with their first-quarter sales figures, the strong revenue was kind of expected.
2.Profitability and Guidance
In addition to revenue, TSMC's profitability and second-quarter guidance also exceeded expectations.
Their first-quarter gross margin came in at 53.1%, beating analysts' estimate of 53%. And they're predicting second-quarter revenue to be $19.6-20.4 billion, well above analysts' expectations of $19.1 billion.
If we take the mid-point, TSMC's second-quarter revenue could hit $20 billion, a 27.6% year-on-year growth!
3.Technology Process
Breaking it down by technology process, 3 nm chips contributed 9% of first-quarter revenue, lower than the 15% in the fourth quarter last year. That's mainly because 3 nm chips are currently used in iPhones, and the first quarter is usually a sales lull for smartphones.
On the other hand, 5 nm chips accounted for 37% of revenue, mostly driven by AI demand from things like $NVIDIA Corp(NVDA)$ 's H100 GPU and $Advanced Micro Devices(AMD)$ 's MI300 GPU.
Combined with 7 nm, advanced technologies contributed 65% of TSMC's revenue in the first quarter, an all-time high:
4.Sub-platforms
In terms of sub-platforms, HPC (high performance computing) revenue increased by 3% quarter-on-quarter, and smartphones fell by 16% sequentially, in line with the proportion of production process changes:
Although DCE (digital consumption) jumped 33% quarter-on-quarter, it is not important because DCE only contributes 2% of TSMC's revenue.
4.Capital Expenditure
As for capital expenditure, while the first-quarter figure hit $5.77 billion, higher than the $5.24 billion in the fourth quarter of last year, the management still stuck to their annual forecast of $28-32 billion.
5.Stock Price
In the first-quarter, TSMC clearly outperformed analysts' expectations, and its stock price jumped nearly 3% in pre-market trading.
6.Outlook
In fact, compared with previous guidance, TSMC's strong results were within expectations.
Like in their fourth-quarter report last year, the management predicted 2024 revenue growth to be between 20-25%. In the first-quarter report, they maintained that prediction but narrowed it down to the lower end of the range.
And during the earnings call, the management revised their earlier projection of over 10% growth for the entire semiconductor market (excluding memory) to just about 10%. That subtle change might have some investors worried.
In addition, TSMC now expects their 2 nm technology to go into mass production in the fourth quarter of 2025, which is later than previously stated. That might mean they'll miss the deadline for $Apple(AAPL)$ 's iPhone 17.
Despite these hidden concerns, the future still looks bright for TSMC. With AI-powered mobile phones entering the market, it could spark a new wave of phone upgrades and expand the application of 3 nm process. AI GPUs are still in high demand. So any worries about TSMC are probably overblown.
Looking at valuations, TSMC's price-to-book ratio still has room to grow compared to the peak of the semiconductor bull market in 2021.
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