Tariff chaos doesn't hinder "bomb" guidance, TSMC remains unfazed?

TSMC (TSMC) released its Q1 2025 earnings report (as of March 2025) during the US pre-market session on April 17, 2025, Beijing time. Key highlights:

1. Revenue: Remains solid. $Taiwan Semiconductor(TSM.US) reported revenue of $25.5 billion, in line with guidance ($25-25.8 billion). Quarterly revenue declined 5% sequentially, with shipment volume contributing -4.7% and average selling price (ASP) contributing -0.4%. The sequential decline was impacted by seasonal factors and earthquake disruptions, but ASP remained strong at over $7,800 per wafer.

2. Gross profit & margin: Maintained at high levels. TSMC's Q1 2025 gross margin was 58.8%, near the upper end of guidance (57-59%). Despite slight sequential margin pressure from smartphone seasonality and lower 3nm contribution, margins stayed robust.

3. Wafer mix: Strong demand for advanced nodes. Smartphones and high-performance computing (HPC) accounted for 87% of revenue combined. While smartphone revenue dipped seasonally, AI demand remained strong, driving HPC's share to 59% of total revenue. Advanced nodes (7nm and below) maintained over 70% share. North America's revenue share rose to 77%, driven by HPC clients.

4. Guidance: Q2 2025 revenue is projected at $28.4-29.2 billion (vs. consensus $27.2 billion) with gross margin of 57-59% (consensus 58.2%). The 11.4-14.5% sequential growth is fueled by Apple's iPhone 16e and AI demand, while margins stabilize.

Dolphin Research's take: Solid numbers, but "hardcore guidance" is the real confidence booster.

TSMC's Q1 revenue and margins were healthy despite earthquake disruptions affecting ~$1 billion in output. Without this impact, revenue would have exceeded guidance. Near-59% margins were supported by AI demand and advanced node utilization.

Guidance stole the spotlight—double-digit sequential growth signals confidence. Dolphin Research attributes this to iPhone 16e and HPC demand. Maintaining full-year revenue growth (25%) and capex ($38-42 billion) targets further underscores management's confidence.

Amid tariff concerns, TSMC's guidance acts as a "stabilizer." Unlike ASML's recent weakness, TSMC's outlook is a bedrock of stability. Key differentiators:

1) Business mix: AI drives semiconductor growth. TSMC's HPC (60% share) directly captures this via chipmaking, while ASML indirectly benefits through equipment sales.

2) Client base: TSMC serves AI chip leaders like NVIDIA, AMD, and Broadcom. Beyond 5-7nm AI opportunities, it gains from Cowos packaging and Windows+ARM transitions, taking share from Samsung/Intel.

ASML faces mixed demand—TSMC/SK Hynix are ramping capex, while Intel/Samsung cut back.

3) US expansion: TSMC's $100 billion US fab investment alleviates tariff concerns by boosting local production.

TSMC's fundamentals clearly outshine ASML's, justifying its bold guidance. Additional demand from Qualcomm and Intel's outsourcing could further boost growth. With unmatched industry leverage, TSMC offers rare certainty.

Dolphin Research notes an intriguing angle: TSMC's early $100 billion US commitment (potentially aiding Intel) reflects unshakable confidence—unlike NVIDIA's recent $5.5 billion inventory hit from H20 licensing issues and reactive $500 billion AI investment pledge post-US demands.

Speculation: TSMC may emerge as the tariff war's steadiest player. For management's capacity/tariff views, stay tuned for Dolphin Research's earnings call notes.

Detailed analysis:

1. Revenue: Q1 revenue of $25.53 billion met guidance ($25-25.8 billion). The 5% sequential drop reflected seasonality and earthquake disruptions (~$1 billion impact). Without earthquakes, revenue would have exceeded guidance.

Volume/price breakdown:

1) Volume: Wafer shipments fell 4.7% QoQ to 3,259K (12-inch equivalent), mainly from smartphone seasonality. Capex of $10.06 billion (above historical Q1 levels) and reiterated $38-42 billion full-year target (+30% YoY) signal strong AI/semiconductor demand recovery.

2) Price: ASP dipped 0.4% to $7,834/wafer due to lower 3nm mix but stayed elevated on price hikes and AI demand.

Q2 guidance of $28.4-29.2 billion (+11.4-14.5% QoQ) reflects iPhone 16e and AI momentum, with advanced nodes at full capacity.

2. Gross margin: Q1 gross profit fell 5.4% to $15 billion, with margin down 0.2ppt to 58.8% (above consensus 58.1%). Despite 3nm/earthquake impacts, near-59% margins were impressive, supported by AI demand and advanced node utilization.

Margin drivers (per wafer):

1) Revenue: $7,834 (-$31 QoQ) remained high.

2) Fixed costs (depreciation): $1,635 (+$92 QoQ) rose with capex.

3) Variable costs: $1,594 (-$88 QoQ) improved with utilization.

Gross profit/wafer dipped $34 to $4,605, mainly from ASP, with costs offsetting.

Q2 margin guidance of 57-59% reflects sustained advanced node demand.

3. Wafer mix:

3.1 By application: Smartphones (28%) and HPC (59%) drove 87% of revenue. Q2 growth will rely on iPhone 16e and AI.

3.2 By node: 7nm and below held 73% share (3nm: 22%; 5nm: 36%). Earthquakes temporarily disrupted advanced nodes, but AI demand keeps utilization high. Qualcomm/Intel outsourcing could further boost demand.

3.3 By region: North America (77% share) dominates with Apple/NVIDIA/AMD. US fab expansion ($100 billion) will localize production, mitigating tariff risks.