TSMC_ January sales remain strong; 1Q25 revenue revised to lower end of guidance on earthquake impact. Mon Feb 10 2025

Summary of TSMC Conference Call Company Overview - Company: TSMC (Taiwan Semiconductor Manufacturing Company) - Ticker: 2330.TW - Current Price: NT $1105.0 (as of 10 February 2025) - **Price Target**: NT$ 1500.0 (by December 2025) Key Points Industry and Market Performance - January Sales Performance: TSMC reported January 2025 sales of NT $293 billion, reflecting a 5.4% month-over-month increase and a 36.9% year-over-year growth [4][5] - **Impact of Earthquake**: The earthquake on January 21, 2025, is expected to lead to revenue weakness in Q1 2025, with TSMC revising its revenue guidance to the lower end of its previous forecast of US$ 25 billion to US $25.8 billion [4][5] - **Wafer Scrappage**: Approximately 70,000 to 80,000 wafers were scrapped due to the earthquake, leading to an estimated revenue impact of around US$ 1 billion, which is about 4% of the expected Q1 2025 revenues [4] Financial Guidance - Gross Margin (GM) and Operating Profit Margin (OPM): TSMC maintains its guidance for GM at 57-59% and OPM at 46.5-48.5% for Q1 2025, despite the earthquake-related disruptions [4] - Earthquake-Related Losses: TSMC expects to recognize NT $5.3 billion in losses related to the earthquake, which is only 1% of the expected Q1 operating profit [4] Future Outlook - **US Expansion Plans**: TSMC is anticipated to announce further US expansion plans in the coming months, which may help mitigate concerns regarding potential tariffs and reduce the stock's risk premium [4] - **AI Demand**: The company is positioned to benefit from strong demand in AI and high-performance computing (HPC), with expectations of robust capital expenditure from US hyperscalers in 2025 [4][5] Investment Thesis - **Structural Growth Levers**: TSMC's near-monopoly in AI accelerators and edge AI, along with its strong process roadmap and packaging technology, supports a positive long-term outlook [5] - **Pricing Power**: The company is expected to exert pricing power, leading to strong gross margin expansion [5] - **Outsourcing from Intel**: There is a likelihood that Intel will increase outsourcing to TSMC, particularly with the N2 process technology expected to be utilized in 2026/27 [5] Risks - **Market Share Losses**: Potential risks include market share losses to competitors like Samsung Foundry and a challenging foundry competitive landscape in 2025 and beyond [7] - **UTR Recovery**: A sluggish recovery in utilization rates at mature nodes could pose additional risks [7] Conclusion - TSMC remains a key player in the semiconductor industry with strong growth prospects driven by AI demand and strategic expansions. Despite short-term challenges from the earthquake, the long-term outlook remains positive, supported by robust sales growth and a strong market position. The stock is rated as "Overweight" with a price target of NT$ 1500.0.