The results from the world’s largest contract chipmaker, TSMC, are set to be a litmus test for the entire semiconductor market, which, while fueled by the AI boom, is facing challenges such as trade wars. In terms of net profit dynamics, TSMC beat market expectations last quarter.
As Bloomberg explains, the company’s net profit for the first quarter increased by 60.4% year-on-year to $11.1 billion, exceeding analysts’ forecasts. The 41.6% growth in TSMC’s quarterly revenue was announced last week, but the official report indicated that in US dollars this figure increased by 35.3% to $25.5 billion, also exceeding market expectations. The profit margin, although it increased from 53.1 to 58.8% year-on-year, consistently decreased relative to the 59% achieved in the fourth quarter of last year. The company explains this decrease not only by the consequences of the January earthquakes in Taiwan, but also by the growth of capital expenditures on the construction of enterprises outside the island. However, specifically in the first quarter, TSMC’s capital expenditures even decreased – from $11.23 to $10.06 billion.
The company’s operating expenses increased by 30.3% year-on-year, but this did not prevent operating profit from growing by 63.5% to $12.5 billion. Net profit, as noted above, grew by more than 60%. It is noteworthy that the number of silicon wafers shipped by TSMC during the reporting period increased in physical terms by 7.6% to 3.3 million pieces in the equivalent 300 mm size.
Experts attribute the positive dynamics of many of TSMC’s financial indicators in the first quarter to the growth in demand for semiconductor components amid the upcoming introduction of higher customs duties by the US and China. Bloomberg Intelligence analysts also found a “ray of light” in ASML’s yesterday’s report – almost literally, since the amount of orders for the supply of advanced EUV lithographic systems for this equipment manufacturer increased by 83% in the last quarter, reaching 1.2 billion euros. Such equipment is used to produce the most advanced chips in demand in the production of computing accelerators and modern central processors.
Image Source: TSMC
As per tradition, TSMC disclosed its revenue structure in terms of the lithographic technologies used. The share of the advanced 3-nm process technology, although it increased year-on-year from 9 to 22%, significantly decreased compared to the 26% recorded in the previous quarter. However, the share of revenue from the production of 5-nm products consistently increased by two percentage points to 36%. In year-on-year comparison, it decreased by one percentage point. The “borderline” 7-nm process technology followed a similar trend: its share consistently increased from 14 to 15%, but decreased year-on-year from 19%. Thus, the share of advanced processes in the first quarter accounted for 73% of TSMC’s revenue.
In terms of the application areas of the shipped products, the high-performance computing segment came to the fore with 59% of the total revenue, although a quarter ago its share did not exceed 53%. The chips for computing accelerators in demand by TSMC customers belong to this segment, and they are expensive enough to significantly affect the financial results. The company’s revenue in this area has consistently grown by 7%.
Image Source: TSMC
The smartphone segment shows a negative trend of 28%, which is lower both in a sequential comparison (35%) and in a yearly comparison (38%). In addition, TSMC’s revenue from the sale of components for smartphones decreased sequentially by 22%, which can be explained by the seasonal factor.
The Internet of Things and automotive electronics segments each held 5% of revenue. The former reduced revenue by 9%, while the latter increased by 14%. Digital consumer electronics indirectly brings TSMC only 1% of revenue, while a year ago its share was 2%. However, in the first quarter, the company’s revenue in this segment consistently grew by 8%. The leader in growth was the “other” category, which, with a modest share of 2%, increased revenue by 20%.
The geographic breakdown of TSMC’s revenue last quarter reflected the localization of the future impact of tariffs. North America accounted for 77% of the company’s total revenue. China’s share fell from 9% to 7%, both year-on-year and sequentially. Asia-Pacific remained at 9% for the second quarter in a row, while Japan fell from 6% to 4% over the year. The share of Europe, Africa, and the Middle East remained relatively stable, falling from 4% to 3% over the year, but remaining at this level for two quarters in a row.
Speaking about the prospects for revenue growth for the current year, TSMC management retained the previous forecast, implying an increase of approximately 25%. Capital expenditures are also planned to be kept within the range of $38 to $42 billion. Recall that TSMC recently promised the US authorities to spend an additional $100 billion on the construction of three new chip manufacturing plants and two for their packaging. These plans are calculated for several years and are still significantly inferior to the volume of TSMC’s capital investments in Taiwan. Initially, the company planned to invest $65 billion in the construction of three plants in Arizona. TSMC’s revenue forecast for the current quarter also turned out to be higher than investors’ expectations.