Taiwan Semiconductor Manufacturing Co Ltd (TSM) Q3 2024 Earnings Call Highlights: Strong ...

Revenue: USD23.5 billion for Q3 2024, above guidance.

Revenue Growth: 12.8% sequential increase in NT.

Gross Margin: 57.8%, increased by 4.6 percentage points sequentially.

Operating Margin: 47.5%, increased by 5 percentage points sequentially.

EPS: TWD12.54 for Q3 2024.

ROE: 33.4% for Q3 2024.

Cash and Marketable Securities: TWD2.2 trillion (USD69 billion) at the end of Q3 2024.

CapEx: USD6.4 billion for Q3 2024.

Cash Flow from Operations: TWD392 billion for Q3 2024.

Inventory Days: Increased to 87 days.

Revenue by Technology: 3nm contributed 20%, 5nm 32%, 7nm 17% of wafer revenue.

Revenue by Platform: HPC 51%, Smartphone 34%, IoT 7%, Automotive 5%, DCE 1%.

Q4 2024 Revenue Guidance: USD26.1 billion to USD26.9 billion.

Q4 2024 Gross Margin Guidance: 57% to 59%.

Q4 2024 Operating Margin Guidance: 46.5% to 48.5%.

2024 CapEx Expectation: Slightly higher than USD30 billion.

Warning! GuruFocus has detected 6 Warning Sign with TSM.

Release Date: October 17, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Third quarter revenue increased by 12.8% sequentially, driven by strong demand for smartphone and AI-related technologies.

Gross margin improved by 4.6 percentage points to 57.8%, reflecting higher capacity utilization and cost improvements.

Advanced technologies (7nm and below) accounted for 69% of wafer revenue, showcasing TSMC's leadership in cutting-edge processes.

TSMC's cash and marketable securities reached TWD2.2 trillion, indicating strong financial health.

TSMC expects fourth-quarter revenue to increase by 13% sequentially, with a 35% year-over-year growth at the midpoint.

Inventory days increased by four days to 87 days, primarily due to prebuilding of N3 and N5 wafers.

Higher electricity prices in Taiwan are expected to impact gross margins by at least 1%.

Overseas fab costs are higher, leading to a 2%-3% gross margin dilution as new fabs ramp up.

The company faces challenges in meeting the high demand for CoWoS capacity, despite plans to double capacity.

TSMC's overseas fabs, such as those in Arizona and Japan, are expected to have lower profitability initially due to smaller scale and higher costs.

Q: How does TSMC view the trend of AI investments, and what gives you confidence in its sustainability? Also, how do you see the current semiconductor cycle? A: C.C. Wei, Chairman and CEO, stated that AI demand is real and sustainable. TSMC has extensive engagement with AI innovators and sees tangible ROI benefits from AI applications. The current semiconductor cycle is just beginning, with strong AI demand expected to continue for many years.

Q: What is TSMC's outlook on CapEx growth in the coming years, given the strong demand? A: Wendell Huang, CFO, mentioned that while they do not have a specific number for 2025 CapEx, TSMC uses a disciplined approach to determine capacity needs. As long as growth outlook remains strong, CapEx will likely increase, with more updates expected in January.

Q: How should we think about TSMC's gross margin outlook into 2025, considering overseas expansion and other factors? A: Wendell Huang explained that while overseas fabs will dilute gross margins by 2%-3%, factors like reduced N3 ramp dilution and healthy growth will help. However, rising electricity costs and foreign exchange rates could impact margins.

Q: What is TSMC's strategy regarding pricing and potential antitrust concerns, given its strong market position? A: C.C. Wei emphasized that TSMC views customers and suppliers as partners and focuses on value selling. The company requires high gross margins due to its capital-intensive nature and does not foresee antitrust issues as it operates in a competitive market.

Q: Can you provide an update on TSMC's long-term growth outlook, especially with the strong AI demand? A: C.C. Wei noted that while they do not have a new long-term CAGR number, the next five years are expected to be healthy. The robust AI demand could potentially lead to faster growth, but specific figures are not yet available.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.