TSMC (Minutes): 30% of 2nm production capacity will be in US factories in the future
TSMC (TSMC) released its Q1 2025 earnings report (as of March 2025) during US pre-market hours on April 17, 2025, Beijing time:
Below are the earnings call minutes for TSMC's Q1 2025. For a detailed earnings analysis, please refer to "Tariff Chaos Can't Stop 'Explosive' Guidance—Is TSMC Sitting Pretty?"
I. $Taiwan Semiconductor(TSM.US) Key Earnings Highlights
1. Revenue Overview
(1) Q1 2025 revenue: Down 3.4% QoQ in NT$, down 5.1% in USD, mainly due to seasonal weakness in smartphone demand, partially offset by AI-related demand growth. Earthquake impacts also contributed, with revenue slightly above the midpoint of guidance.
(2) Technology revenue breakdown:
3nm: 22% of wafer revenue
5nm: 36% of wafer revenue
7nm: 15% of wafer revenue
Advanced tech (7nm and below): 73% of wafer revenue
(3) Platform revenue breakdown:
HPC: Up 7% QoQ, 59% of revenue
Smartphones: Down 22% QoQ, 28% of revenue
IoT: Down 9% QoQ, 5% of revenue
Auto: Up 14% QoQ, 5% of revenue
DCE: Up 8% QoQ, 1% of revenue
2. Financial Metrics
(1) Gross margin: 58.8%, down 0.2pp QoQ, mainly impacted by earthquakes and overseas fab dilution, partially offset by cost improvements.
(2) OpEx: 10.2% of net revenue.
(3) Operating margin: 48.5%, down 0.5pp QoQ.
(4) EPS: NT$13.94.
(5) ROE: 32.7%.
3. Balance Sheet
(1) Cash & equivalents: NT$2.7T (~$81B).
(2) Current liabilities: Up NT$135B QoQ, mainly due to NT$111B increase in accrued liabilities (primarily income tax payable).
(3) Financial ratios: DSO +1 day to 28 days; inventory days +3 to 83 days due to overseas fab expansion.
4. Cash Flow & Capex
(1) Operating cash flow: NT$626B.
(2) Capex: NT$331B (~$10.06B).
(3) Dividends: NT$104B paid for Q2 2024 cash dividend.
(4) Bond issuance: Raised NT$16B cash.
(5) Cash balance: Up NT$267B to NT$2.4T at quarter-end.
5. Q2 2025 Guidance
(1) Revenue: $28.4B-$29.2B, implying +13% QoQ/+38% YoY at midpoint.
(2) Gross margin: 57%-59% (assuming USD/NTD at 32.5).
(3) Operating margin: 47%-49%.
(4) Tax rate: 20% in Q2; expected to normalize to 14%-15% in Q3/Q4; full-year rate 16%-17%.
II. TSMC Earnings Call Details
2.1 Management Commentary
1. Profitability Outlook
(2) Q1 gross margin: Slightly down 20bps QoQ to 58.8%, with 60bps earthquake impact and Kumamoto fab dilution, partially offset by cost controls.
(2) Q2 gross margin: Midpoint guidance implies 0.8% QoQ decline, mainly from Arizona fab dilution.
(3) Full-year margin dilution: Overseas fabs to dilute margins by 2%-3%, expanding to 3%-4% in later years.
2. Capex & Expansion
(1) 2025 capex budget: $38B-$42B, with 70% for advanced nodes, 10%-20% for specialty, 10%-20% for packaging/testing.
(2) Arizona expansion: Additional $100B planned for 3 new fabs, advanced packaging, and R&D center. Total US investment to reach $165B.
(3) US fab progress: Arizona Fab 1 entered volume production in Q4 2024 with yields matching Taiwan. Fab 2 (3nm) construction complete; accelerating production due to strong AI demand. Fabs 3-4 (N2/A16) to break ground this year pending permits. Fabs 5-6 will use more advanced tech.
3. Demand Trends
(1) Foundry 2.0 growth: +10% YoY in 2025, matching IDC's 11% forecast.
(2) AI demand: AI revenue to double in 2025. AI accelerators (GPUs/ASICs/HBM) driving strong growth; 45%+ CAGR expected post-2024.
(3) Tariffs: No observed customer behavior changes; maintains ~25% USD revenue growth guidance.
4. Global Expansion
(1) Arizona: 3 new fabs (N2/A16) and 2 packaging facilities. ~30% of ≤2nm capacity will be US-based, creating standalone leading-edge cluster.
(2) Japan/Europe: Kumamoto fab (specialty) began production in late 2024; Dresden on track.
(3) Taiwan: Plans for 11 fabs and 4 packaging facilities with government support.
5. Tech Updates
N2/A16: N2 tape-outs exceeding N3/N5 levels, driven by smartphones/HPC; production starts H2 2025. A16 offers further PPA improvements; production starts H2 2026.
2.2 Q&A
Q: CoWoS supply-demand outlook for 2026?
A: Still capacity-constrained despite recent improvements. Must double CoWoS capacity; expects better balance in 2026.
Q: Arizona expansion rationale and pricing?
A: Driven by US clients (Apple/NVIDIA/AMD/etc.). ~30% of 2nm capacity in Arizona. Pricing discussions ongoing to reflect geographic flexibility value.
Q: Geopolitical risk impact?
A: Already factored into guidance.
Q: Tariff sensitivity?
A: Monitoring closely but no customer changes yet.
Q: Mature node expansion plans?
A: No slowdown in Japan/Germany due to specialty demand.
Q: Tariff negotiations?
A: TSMC doesn't participate in government discussions.
Q: Q2 growth drivers?
A: Primarily 3nm/5nm HPC demand; maintains ~25% YoY guidance.
Q: Margin dilution factors?
A: Cost inflation and potential tariff impacts.
Q: US "fairness" definition?
A: Equal subsidy access for all.
Q: Arizona R&D focus?
A: Initial 1,000 engineers to support local operations; may expand to new nodes.
Q: Arizona timeline acceleration?
A: Fab 2 ahead by several quarters; Fab 3 timing depends on permits.
Q: Overseas pricing adjustments?
A: Ongoing discussions to reflect value.
Q: AI demand outside China?
A: Strong US demand supporting AI revenue doubling.
Q: Share buybacks?
A: Prefers sustainable dividend increases.
Q: Packaging tech roadmap?
A: SoIC adoption starting 2025; panel-level packaging in feasibility stage.
Q: Arizona 2nm capacity timeline?
A: ~30% of 2nm in Arizona; future nodes undecided.
Q: H2 visibility?
A: Too early to call; 2nm demand remains strong.
Q: Japan fab contribution?
A: 40K wafers/month at full ramp; immaterial to 2025 revenue.
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