TSMC Earnings Call Highlights Growth Amid Challenges

Taiwan Semiconductor Manufacturing ((TSM)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call for Taiwan Semiconductor Manufacturing (TSMC) painted an optimistic picture driven by strong growth in advanced technologies and high-performance computing segments. The company’s robust performance was fueled by a surge in AI demand and strategic global expansion initiatives. While challenges such as overseas fab costs and geopolitical risks persist, the sentiment remains positive, with an encouraging outlook towards 2025’s growth trajectory.

Strong Revenue and Growth in Advanced Technologies

In the fourth quarter, TSMC reported a sequential revenue increase of 14.3%, largely due to the demand for its 3-nanometer and 5-nanometer technologies. Notably, advanced technologies constituted 74% of the wafer revenue in Q4, marking a substantial rise from 58% in 2023. This highlights the company’s strong foothold in cutting-edge technology sectors.

Record Growth in High-Performance Computing (HPC) Segment

The HPC segment demonstrated impressive growth with a 19% quarter-over-quarter increase, accounting for 53% of Q4 revenue. On an annual basis, HPC revenues surged by 58%, underscoring the company’s leading position in high-performance computing markets.

Improved Financial Performance

TSMC’s financial performance showed significant improvement, with full-year revenue reaching $90 billion, a 30% increase in USD terms. The gross margin improved by 1.7 percentage points to 56.1%, and earnings per share (EPS) rose by 39.9% to TWD 45.25, reflecting strong operational efficiencies.

Expansion in Global Manufacturing

The company successfully ramped up its Arizona fab, with production slated for Q4 2024, and has ongoing expansion plans in Japan and Europe. This global manufacturing strategy is critical for meeting the growing demand and reinforcing TSMC’s international presence.

AI-Related Demand Surges

AI accelerators have become a significant revenue driver, contributing a mid-teens percentage of the 2024 total revenue, with expectations to double in 2025. This surge is indicative of the expanding role of AI in TSMC’s business strategy.

Challenges with Overseas Fab Costs

Despite the successes, TSMC faces challenges with overseas fab costs, particularly in the U.S., which are projected to dilute margins by 2% to 3% annually over the next five years. This highlights the cost pressures associated with international expansion.

Impact of U.S. Export Restrictions

Potential risks loom from U.S. restrictions on AI chip exports to China. However, TSMC’s current analysis suggests these impacts are manageable, allowing the company to navigate geopolitical uncertainties.

Decline in IoT and DCE Segments

While several segments thrived, the IoT and DCE segments saw a decline, with revenues decreasing by 15% and 6% quarter-over-quarter, respectively. This contrasts with the overall growth narrative and presents areas for potential focus.

Forward-Looking Guidance

TSMC’s forward-looking guidance for Q1 2025 projects a revenue range between USD 25 billion and USD 25.8 billion, despite a sequential decline, marking a significant year-over-year increase. The company anticipates a gross margin between 57% and 59%, with an operating margin of 46.5% to 48.5%. Capital expenditures for 2025 are set between USD 38 billion and USD 42 billion, primarily for advanced process technologies, emphasizing TSMC’s commitment to maintaining a competitive edge.

In conclusion, TSMC’s earnings call reflects a positive sentiment driven by strong technological advancements and strategic global expansion, despite facing challenges such as higher overseas fab costs and geopolitical risks. The company’s robust growth in advanced technologies and high-performance computing, coupled with its forward-looking guidance, indicates a promising outlook for 2025, reaffirming TSMC’s influential position in the semiconductor industry.