Summary of Hua Hong Semiconductor Conference Call Company Overview - **Company**: Hua Hong Semiconductor - **Sector**: Semiconductors - **Focus**: Pure foundry primarily engaged in 200mm and 300mm wafer processing, specializing in semiconductors for specialty applications such as embedded non-volatile memory (eNVM) and power discrete [12][13] Key Points and Arguments Downgrade and Price Objective - **Rating Change**: Downgraded from Buy to Underperform due to cautious outlook on wafer ASP and margin recovery in 2026 [1][3] - **New Price Objective**: HK$59, based on a 2x P/B (2026E), reflecting a more conservative valuation compared to the previous HK$44.5 [3][44] Inventory and Demand Dynamics - **Inventory Pressure**: Rising inventory levels among China's semiconductor chipmakers are expected to limit ASP increases in 2026, with a revised assumption of 5% ASP growth (down from 10%) [2][16] - **Demand Growth**: Chip shipment growth in China has slowed significantly, with 0%/11%/6% YoY growth in June/July/August 2025, compared to 16-40% YoY in the previous periods [2][15] Financial Forecasts - **Profitability Outlook**: Estimated operating profit margin (OPM) of 4% in 2026, improving from -4% in 2025 but below the 10-year average of 10% [2][31] - **Net Income Projections**: Adjusted net income forecast for 2026 is US$216 million, with a gradual recovery expected in subsequent years [4][42] Capacity Expansion and Acquisitions - **Acquisition of Huali Micro**: Plans to acquire Huali Micro (Fab5) announced, but details are pending. This acquisition is expected to enhance long-term competitiveness by increasing revenue and capacity [1][3] - **Capacity Growth**: Completion of Fab9 in 2026 could increase total 12" wafer capacity by 38%, with total wafer shipment expected to grow by 26% in 2026 [31][37] Market Position and Valuation - **Market Share Risks**: Aggressive capacity expansion by competitors like SMIC poses downside risks to Hua Hong's market share and profitability [3][13] - **Valuation Comparison**: Hua Hong's current P/B of 2.6x (2026E) is higher than the average of 3.2x for China foundry/OSATs, indicating a rich valuation [60] Cash Flow and Capital Expenditure - **Free Cash Flow**: Negative free cash flow expected due to high capital expenditures for Fab9 construction, projected at US$2-3 billion per year [45][46] - **Operating Cash Flow**: Operating cash inflow is expected to remain below US$1.5 billion, leading to negative free cash flow in the near term [45][46] Additional Important Insights - **Sales Mix**: Sales exposure to overseas markets has decreased from over 40% in 2017-2019 to less than 20% by 2024, indicating a shift towards domestic markets [42] - **ASP and Margin Trends**: Wafer ASP stabilization is anticipated in 1H25, but overall margins are expected to remain below 20% by the end of 2026 due to inventory pressures [39][40] This summary encapsulates the critical insights from the conference call regarding Hua Hong Semiconductor's current position, challenges, and future outlook in the semiconductor industry.

TSMC Earnings Call Summary Company Overview - **Company**: TSMC (2330.TW) - **Industry**: Semiconductors - **Market Cap**: NT$38,503,011 million - **Current Stock Price**: NT$1,485.00 - **Price Target**: Revised from NT$1,588.00 to NT$1,688.00 [1][5][49] Key Financial Performance - **3Q25 Preliminary EPS**: NT$17.44, exceeding estimates of NT$16.30 [9][12] - **3Q25 Gross Margin**: 59.5%, above estimates of 58.4% [9][12] - **4Q25 Guidance**: Revenue expected to decline by 1% Q/Q, with gross margin guidance of 59%-61% [10][15] - **2025 Revenue Growth**: Expected to be close to mid-30% Y/Y in USD, revised from original guidance of around 30% Y/Y [7][11] - **2025 Capex Guidance**: Narrowed to US$40-42 billion from US$38-42 billion [7] AI Demand Insights - **AI Demand**: Stronger than previously anticipated, with a projected 5-year CAGR of mid-40% or higher [7][23] - **AI Revenue Contribution**: Expected to significantly impact TSMC's growth, with potential upside from the Chinese market [7][23] - **Wafer Price Increase**: Anticipated 3%-5% increase in wafer prices in 2026 due to node migration and value reflections [7] Market Position and Competitive Landscape - **Moore's Law**: Management believes the focus is shifting towards system performance rather than just chip scaling, indicating a new era of energy efficiency and system performance improvement [13] - **Foundry Competition**: TSMC maintains a strong partnership with Intel, which remains a significant customer [13] - **Broader Semiconductor Cycle**: No signs of pre-build inventory; demand has become seasonal again [13] Future Outlook - **2025 Revenue Estimates**: Expected to grow 34% Y/Y in USD terms, with gross margins projected at 59-60% [11][39] - **2026 and 2027 Revenue Growth**: Anticipated growth of 25-30% due to strong AI demand [11] - **Investment Drivers**: Continued strong profitability and revenue growth expected, with TSMC positioned as a top pick in the semiconductor industry [45] Risks and Considerations - **Potential Risks**: Inventory corrections, weakening demand for leading-edge technologies, and rising costs of overseas fabs [54] - **Upside Potential**: Increased bargaining power and long-term margin expansion due to sustainable AI semiconductor demand [46] Conclusion - TSMC's strong financial performance, driven by robust AI demand and strategic market positioning, supports a positive outlook for the company. The revised price target reflects confidence in continued growth and profitability in the semiconductor sector.

June 15, 2025 10:57 PM GMT TSMC | Asia Pacific M Idea Wafer price hike in 2026 and strong AI demand may offset the FX impact; OW TSMC remains our sector Top Pick. We expect stock to further re-rate amid the margin erosion on FX impact – AI demand remains strong into 2026, while TSMC should be able to hike global wafer price by 3-5% on average Stock gradually recovers after three overhangs removed: Over the past three months, we have been navigating through three overhangs: 1) Intel JV speculation, 2) AI dem ...