Yesterday, the highly anticipated TSMC released its first quarter financial report.

Financial reports show that the company's mobile chip orders have decreased from the same period last year, but the company's revenue still exceeded expectations. Data shows that TSMC's sales reached NT$839.25 billion, or about US$25.8 billion, in the three months ending March 31. This is a 41.6% increase from the same period last year. And this revenue growth has helped improve its profitability. Data shows that TSMC's net profit in the first quarter was NT$361.56 billion, or about US$11.12 billion. This is equivalent to adjusted earnings per share of US$2.12, higher than the FactSet forecast of US$2.07.

TSMC Chief Financial Officer Huang Renzhao said: "Our business was affected by smartphone seasonality in the first quarter, but the continued growth in demand related to artificial intelligence partially offset this impact."

TSMC, amazing performance

As the world's largest chip foundry, TSMC produces more than 11,000 processors for about 500 customers. Its fabs produced the equivalent of 16 million 12-inch wafers of semiconductors last year. This accounts for most of the global supply of chips produced using advanced manufacturing processes.

Among them, advanced processes (defined by TSMC as processes using 7 nanometers or higher technology) account for an important part of the company's revenue.

As shown in the figure below, in the first quarter of several years, 7nm, 5nm and 3nm contributed 15%, 36% and 22% of the company's revenue respectively. In other words, advanced processes alone accounted for 73% of the company's wafer output in the first quarter. In contrast, we can see that in this quarter, TSMC's 3nm share of the company's total revenue has declined from 26% in the previous quarter.

From the above figure, we can also see a strange point, that is, in Q4 2024, TSMC does not have the 20nm node in the same pie chart, but in the figure below, this node appears at the same time as 16nm. Regarding 20nm, according to TSMC, the company used innovative double exposure technology in 2014 to become the world's first semiconductor company to achieve 20nm mass production, and set TSMC's fastest mass production node record in the same year.

Due to the use of energy-saving transistors and interconnects and world-leading double patterning technology, 20nm technology provides better density and power values than previous technology nodes. Originally, this technology has been replaced by the commercial 16 nm process, but now it has reappeared. I don't know what the reason behind it is. Everyone is welcome to share.

From the revenue contribution of different platforms, as shown in the figure above, HPC has become TSMC's strongest leader. Revenue increased by 7% year-on-year this quarter, accounting for 59% of the company's revenue, far ahead of smartphones, which used to be the largest contributor. This growth helped offset the impact of declining demand in the smartphone and connected device markets, where TSMC's sales fell by 22% and 9%, respectively.

Thanks to these leading performances, TSMC's net profit for the quarter increased by 60.3% year-on-year, and net revenue for the quarter increased by 41.6%.

What was said at the earnings conference?

For TSMC's earnings conference, we are very concerned about some of the company's leaders' judgments and sharing about the future.

First, regarding tariffs, Taiwan is currently facing a 10% tariff imposed by the Trump administration. According to current regulations, unless an agreement is reached with the United States, this rate may rise to 32% after the president's 90-day "reciprocal tariff" suspension period ends.

In this regard, TSMC CEO Wei Zhejia said: "We understand that there are uncertainties and risks in the potential impact of tariff policies." But he pointed out that the company has not seen any changes in customer behavior. In other words, end customers have not reduced orders due to tariff issues. Wei Zhejia also confirmed that demand driven by AI and HPC continues to be strong; showing TSMC's strong bargaining power.

When legal persons asked major customers NVIDIA (NVIDIA) about geopolitical issues such as the export of H20 downgraded chips sold to China by the United States, Wei Zhejia pointed out that TSMC does not comment on the products of specific customers, but has taken relevant factors into consideration when proposing the full-year growth outlook.

Wei Zhejia said that many people are now speculating. TSMC has indeed noticed the potential impact of all the tariff policies announced recently and will continue to observe carefully. So far, no changes have been seen in customer behavior, so it has not adjusted its revenue outlook for this year.

Therefore, with the continuous development of artificial intelligence, TSMC maintains its forecast of revenue growth close to the mid-20% in 2025. Among them, AI-related revenue will double, and the annual compound growth rate (CAGR) will remain unchanged at 44-46% in the next five years.

As part of its efforts to diversify its supply chain, TSMC has invested billions of dollars in overseas factories, but most of its manufacturing operations are still in Taiwan. TSMC announced last month that it plans to invest an additional $100 billion in the United States, having previously pledged to invest $65 billion in three factories in the United States, which is obviously a response to Trump's trade policy.

Wei Zhejia also emphasized that this decision was made because the demand for artificial intelligence (AI) from American customers is very strong, including Apple, Nvidia, Qualcomm, Broadcom, etc. TSMC needs to expand production in the United States to support customers, but it will not slow down its investment plans in Japan and Germany.

"Let me emphasize again that the reason why we expanded our factory in Arizona is entirely in response to the needs of our customers, such as Apple, Nvidia, AMD, Qualcomm, and Broadcom. Such a layout will also create higher economies of scale and help build a more complete semiconductor supply chain ecosystem in the United States." Wei Zhejia said.

In addition, TSMC will continue to increase COWOS production capacity to support customers and is optimistic about the long-term demand for AI. When it comes to next year's demand, Wei Zhejia emphasized that it will still be a large number by 2026, and will continue to work hard to double the expansion of CoWoS production capacity. I believe that by next year, demand and capacity will be more balanced.

Previously, foreign media pointed out that a joint venture will be established with American IDM companies. Wei Zhejia also solemnly stated and denied it, emphasizing that TSMC has no relevant discussions.

Finally, regarding government policies, Wei Zhejia also responded that tariff policies are formulated by the government, TSMC is a private company, and respects government decisions but will not intervene.

TSMC CFO and spokesman Huang Renzhao pointed out that TSMC's performance in the first quarter of 2025 was affected by the seasonality of smartphones, but this impact was partially offset by the continued growth of AI-related demand. Entering the second quarter of 2025, TSMC's performance is expected to benefit from strong demand for industry-leading 3nm and 5nm technologies. Although we have not seen any changes in customer behavior so far, potential impacts such as uncertainty and risks from tariff policies still exist. TSMC will continue to pay close attention to the potential impact of the relevant situation on terminal market demand and respond cautiously.

Looking ahead to the second quarter, TSMC expects consolidated revenue to be between US$28.4 billion and US$29.2 billion; if the exchange rate of NT$32.5 to US$1 is assumed, the gross profit margin will be between 57% and 59%, and the operating profit margin will be between 47% and 49%.

Overseas wafer fab planning, detailed explanation

At TSMC's earnings conference, part of the important information was the company's interpretation of future wafer fab planning.

TSMC said that all current overseas decisions are based on customer needs because they value a certain degree of regional flexibility; in addition, it also includes the necessary degree of government support. This is to maximize the value of TSMC shareholders. Therefore, with the strong cooperation and support of TSMC's advanced American customers and the US federal, state and city governments, TSMC recently announced its intention to increase investment by $100 billion in advanced semiconductor manufacturing in the United States. This expansion includes the construction of three new wafer fabs, two advanced packaging plants, and a research and development center.

TSMC pointed out that combined with the previously announced plan to establish three advanced semiconductor manufacturing facilities in Arizona, the total investment in the United States is expected to reach $165 billion to support strong multi-year customer demand. The first wafer fab in Arizona has successfully entered mass production using N4 process technology in the fourth quarter of 2024, with a yield comparable to that of wafer fabs in Taiwan. The second wafer fab, which will use 3nm process technology, has been completed and is working to accelerate mass production based on strong customer demand for AI-related products.

TSMC pointed out that combined with the previously announced plan to build three advanced semiconductor manufacturing facilities in Arizona, the total investment in the United States is expected to reach US$165 billion to support strong multi-year customer demand. The first wafer fab in Arizona has successfully entered mass production using N4 process technology in the fourth quarter of 2024, with a yield comparable to that of wafer fabs in Taiwan. The second wafer fab, which will use 3-nanometer process technology, has been completed and is working to accelerate mass production based on strong customer demand for AI-related products.

The third wafer fab

As for the third wafer fab, which will use N2 and A16 process technologies, it is expected to obtain all necessary licenses and start construction later in 2025. The fourth wafer fab will use N2 and A16 process technologies, while the fifth and sixth wafer fabs will use more advanced technologies. The construction and mass production plans of these wafer fabs will depend on customer needs. It is also planned to build two new advanced packaging facilities in Arizona and set up a research and development center to improve the AI supply chain.

The expansion plan will enable TSMC to expand into a GIGAFAB cluster to support the needs of leading customers in the fields of smartphones, AI and HPC applications. Through this additional $100 billion investment plan, TSMC has expanded its advanced process capacity in Arizona, and TSMC is not currently in any discussions with other companies on any joint ventures, technology licensing, or technology transfer and sharing. As for the customers who will currently invest in Arizona, they include Apple, Qualcomm, Broadcom, AMD, and Nvidia.

TSMC's 2nm

As for, after the planned construction is completed, about 30% of TSMC's 2nm and more advanced process capacity will come from the Arizona wafer factory, becoming an independent advanced semiconductor manufacturing cluster in the United States. This will also create greater economies of scale for TSMC and help cultivate a more complete semiconductor supply chain ecosystem in the United States. Therefore, TSMC will continue to play a key and indispensable role in supporting the success of customers, while also continuing to serve as a key partner and promoter of strengthening the US semiconductor industry and its leadership.

In Japan, thanks to the strong support of the central, prefectural and local governments of Japan, progress is also very good. The first special process technology wafer factory in Kumamoto has started mass production with very good yields at the end of 2024. The construction of the second special process wafer factory is scheduled to start later in 2025, depending on the readiness of local infrastructure. In Europe, TSMC has received firm commitments from the European Commission, the German federal government, state governments and municipal governments, and is building a special process technology wafer factory in Dresden, Germany as planned.

Finally, with the support of the Taiwanese authorities, TSMC plans to build 11 wafer fabs and four advanced packaging facilities in Taiwan in the next few years. N2 is expected to start mass production in the second half of 2025, and TSMC is preparing several phases of 2-nanometer wafer fabs in Hsinchu and Kaohsiung Science Park to support strong structural demand from customers. By expanding TSMC's global manufacturing footprint and continuing to invest in Taiwan, TSMC will be able to continue to be a trusted technology and capacity provider for the global logic IC industry in the coming years, while bringing profit growth to TSMC's shareholders.

In addition, TSMC stated that the capital expenditure budget for 2025 is US$38 billion to US$42 billion, of which about 70% will be used for advanced processes, 10%-20% for special processes, and 10%-20% for advanced packaging, etc.

Although there are many challenges, from TSMC's sharing, the company is not afraid of headwinds, and HPC demand is still very strong. Going to the United States is an inevitable trend, and advanced processes will also go there. Therefore, the author believes that for the wafer foundry giants, how to ensure that their roots remain in Taiwan and are not hollowed out by the United States is the key issue they need to consider in the future.

Source: Semiconductor Industry Observation

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