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TSMC(TSM) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Second quarter revenue increased 11.3% sequentially, supported by strong demand for three nanometer and five nanometer technologies, with a 17.8% increase in U.S. dollar terms to $30.1 billion, exceeding guidance [7][20] - Gross margin decreased by 0.2 percentage points sequentially to 58.6%, primarily due to unfavorable foreign exchange rates and margin dilution from overseas fabs [7][14] - Operating margin increased by 1.1 percentage points sequentially to 49.6%, with EPS up 60.7% year over year and ROE at 34.8% [8][10] Business Line Data and Key Metrics Changes - Revenue by technology: three nanometer contributed 24% of wafer revenue, five nanometer 36%, and seven nanometer 14%, with advanced technologies (seven nanometer and below) accounting for 74% of wafer revenue [8] - Revenue contribution by platform: HPC increased 14% quarter over quarter to 60%, smartphone increased 7% to 27%, IoT increased 14% to 5%, automotive remained flat at 5%, and DCE increased 30% to 1% [9] Market Data and Key Metrics Changes - The company ended the second quarter with cash and marketable securities of NT$2.6 trillion (approximately $90 billion) [10] - Current liabilities decreased by $1 billion quarter over quarter, mainly due to a decrease in accrued liabilities [10] Company Strategy and Development Direction - The company plans to invest a total of $165 billion in advanced semiconductor manufacturing in the U.S., including six advanced wafer manufacturing fabs in Arizona [24][25] - The expansion will enable TSMC to scale up production faster to support leading-edge customers in smartphone, AI, and HPC applications [26][28] - The company aims to maintain a competitive position through technology leadership, manufacturing excellence, and customer trust [22][23] Management's Comments on Operating Environment and Future Outlook - Management expects strong demand for semiconductor technology, particularly in AI and HPC, with a projected 30% increase in full-year 2025 revenue in U.S. dollar terms [22] - There are uncertainties regarding tariff policies and their impact on consumer-related markets, but overall semiconductor demand remains robust [21] - Management remains cautious about the potential impact of macroeconomic factors on future performance [21][47] Other Important Information - The company anticipates gross margin dilution from overseas fabs to be between 2% to 3% annually in the early stages, widening to 3% to 4% in later stages [15] - The sensitivity of revenue to the NT dollar exchange rate is nearly 100%, with a 1% appreciation reducing reported NT revenue by 1% [17][19] Q&A Session Summary Question: Demand outlook for AI and data center - Management noted that AI demand is getting stronger, and they are working to narrow the supply-demand gap [40][42] Question: Gross margin sustainability - Management expressed confidence in maintaining a gross margin of 53% and higher despite structural headwinds from foreign exchange rates and overseas fab dilution [51][76] Question: AI accelerator growth and market potential - Management indicated that while it is too early to revise growth targets, the potential for increased demand from China is positive [54][80] Question: CapEx guidance and future expansion - Management stated that CapEx is aligned with business opportunities and macro uncertainties, with expectations for potential increases in future years [94][95] Question: Advanced packaging and technology prioritization - Management emphasized the importance of customer demand in developing advanced packaging technologies and maintaining flexibility in technology transfer [103][106]