Group 1 - TSMC's N2 process has better profitability compared to the N3 process [1]

Core Viewpoint - TSMC's Q2 performance is expected to exceed expectations, driven by strong demand for advanced process nodes, but the appreciation of the New Taiwan Dollar poses challenges for its profitability in the second half of the year [1][2]. Group 1: Q2 Performance - Morgan Stanley forecasts TSMC's Q2 revenue to reach $29.95 billion, a 17% quarter-over-quarter increase, significantly surpassing the company's guidance of 11-14% [2]. - The strong performance is attributed to three main factors: rapid ramp-up of N3 process, sustained strong performance of N5 series, and urgent orders from older process nodes [2]. - Despite the significant appreciation of the New Taiwan Dollar, Q2 gross margin is expected to remain at 57.9%, within the company's guidance range, due to higher capacity utilization and price increases from urgent orders [2] [1]. Group 2: Outlook for H2 - For the second half of the year, the fundamental drivers are viewed more positively compared to three months ago, leading to an upward revision of TSMC's 2025 revenue guidance to a high growth level of 29% (in USD) [3]. - However, the New Taiwan Dollar has appreciated by 11% since late April, which is expected to significantly impact gross margin and profitability in the second half [3]. - Morgan Stanley has adjusted its exchange rate model to 1 USD = 29 TWD, resulting in a 1% and 2% downward revision of TSMC's earnings forecasts for 2025 and 2026, respectively [3]. - The expected gross margin for the second half is projected to decline to around 56% due to the impact of currency appreciation [3]. - Quarterly forecasts indicate a 3-6% quarter-over-quarter revenue growth for Q3, while Q4 is expected to decline by 6% due to the fading effect of demand pull-forward and conservative expectations for non-AI demand [3]. Group 3: Advanced Process Demand - Despite currency challenges, TSMC's leadership in advanced processes and strong demand remain its core competitive advantages [4]. - The demand for N3 process is expected to maintain over 100% utilization in 2026 and 2027, potentially leading to supply shortages due to capacity constraints [7]. - The demand outlook for N2 process in 2026 is described as "quite strong," with major clients like Apple, AMD, Broadcom, Qualcomm, MediaTek, and Intel likely to adopt N2 technology [7]. - Apple is considering the full adoption of N2 processors in four new iPhone models in the second half of 2025, which could further boost N2 demand [7].

Core Viewpoint - Intel's new CEO, Pat Gelsinger, is considering a significant shift in its wafer foundry strategy to attract major clients, potentially prioritizing the development of the next-generation 14A process over the previously planned Intel 18A process [1][2]. Group 1: Strategy and Development - Intel may halt marketing the 18A process to new clients as early as July, with a final decision possibly delayed until fall due to the complexity and financial implications involved [1]. - The company is currently in the risk production phase for the Intel 18A process, which is expected to reach mass production this year, but there are indications that resources may be redirected towards the 14A process [1][2]. - The 14A process is viewed as having the potential to surpass TSMC's technology in certain aspects, aiming to attract major clients like Apple and Nvidia, who currently rely on TSMC for their chip production [1]. Group 2: Financial Implications - If Intel decides to abandon the 18A and 18A-P processes, it may incur significant write-downs, potentially amounting to hundreds of millions or even billions of dollars [2]. - Intel's primary customers for the 18A process have been internal, with plans to produce the Panther Lake laptop chips, which are touted as the most advanced processors designed and manufactured in the U.S. [2]. Group 3: Client Commitments and Market Position - Intel has made commitments to Amazon and Microsoft to produce a limited quantity of chips using the 18A process, with set delivery timelines [2][3]. - TSMC has highlighted its advancements in 2nm and A16 process technologies, indicating a competitive edge in energy-efficient computing, with most innovators collaborating with TSMC [3].

Core Viewpoint - TSMC's Q1 revenue increased by 42% year-on-year, reaching approximately NT$285.96 billion, with cumulative revenue for the quarter at NT$839.25 billion (about $25.53 billion), aligning with market expectations despite concerns over potential impacts from new U.S. tariffs [1][2]. Group 1: Revenue Performance - TSMC's Q1 revenue of NT$285.96 billion and cumulative revenue of NT$839.25 billion fell within the company's forecast range of $25 billion to $25.8 billion [1]. - Analysts had initially expected a slight dip in revenue due to the January earthquake, but the actual results exceeded these expectations [1]. Group 2: Market Concerns - Investors are particularly focused on the potential weakening of global chip demand following the implementation of new U.S. tariffs on April 9 [1]. - There is anticipation regarding TSMC's upcoming investor conference on April 17, where the company may revise its annual revenue and capital expenditure targets [1]. Group 3: Competitive Position and Risks - Bloomberg analysts believe TSMC maintains a leading position in advanced process technologies, particularly in 2nm and 3nm nodes, which should mitigate the impact of U.S. tariffs [2]. - However, TSMC faces short-term profit risks due to rising operational costs from rapid overseas capacity expansion, particularly in the U.S., and low utilization rates in mature process technologies [2]. Group 4: Customer Impact - TSMC's major customer, NVIDIA, may have 40% to 60% of its U.S. system products eligible for tariff exemptions, potentially reducing the impact of tariffs [3]. - Despite some products being assembled in the U.S., approximately half of NVIDIA's components are still produced in Asia, particularly Taiwan, which may continue to face tariff risks [3].