TSMC(TSM) - 2025 Q3 - Earnings Call Transcript

Financial Highlights - Third quarter revenue increased 10.1% sequentially to $33.1 billion, slightly exceeding guidance, driven by strong demand for leading-edge process technologies [3][10] - Gross margin rose 0.9 percentage points sequentially to 59.5%, attributed to cost improvements and higher capacity utilization, despite foreign exchange challenges [3][6] - Operating margin increased 1.0 percentage point sequentially to 50.6% [3] - Earnings per share (EPS) was 17.44 NT, up 39% year over year, with a return on equity (ROE) of 37.8% [3] Business Line Performance - Revenue contribution from 3-nanometer process technology was 23%, while 5-nanometer and 7-nanometer accounted for 37% and 14% respectively [4] - High-Performance Computing (HPC) remained flat at 57% of revenue, while smartphone revenue increased 19% to 30%, IoT grew 20% to 5%, and automotive rose 18% to 5% [4] - Data Center Equipment (DCE) revenue decreased 20% to 1% [4] Market Data - The company ended the third quarter with cash and marketable securities of 2.8 trillion NT ($90 billion) [4] - Current liabilities decreased by 101 billion NT, mainly due to a reduction in accrued liabilities [4] Company Strategy and Industry Competition - TSMC is narrowing its 2025 capital expenditures (CAPEX) guidance to between $40 billion and $42 billion, with 70% allocated for advanced process technologies [9] - The company expects gross margin dilution from overseas fabs to be between 1% to 2% for the full year 2025, improved from previous estimates [7] - TSMC aims to leverage its manufacturing technology leadership and large-scale production to remain competitive [8] Management Commentary on Operating Environment and Future Outlook - Management noted strong AI-related demand and a mild recovery in non-AI segments, projecting full-year 2025 revenue growth of close to mid-30% year over year in U.S. dollar terms [10][11] - The company remains cautious about potential tariff impacts on consumer-related markets but is committed to investing in future megatrends [11] - TSMC is focused on technology leadership, manufacturing excellence, and customer trust to strengthen its competitive position [11] Other Important Information - TSMC is expanding its global manufacturing footprint, with significant progress in Arizona and plans for additional fabs in Japan and Germany [16][17] - The company is preparing for the ramp-up of its 2-nanometer technology, with volume production expected later this quarter [18] Q&A Session Summary Question: AI Demand Growth - Management confirmed that AI demand is stronger than previously anticipated, with an expected CAGR in the mid-40% range for AI accelerators [21][24] Question: CAPEX Outlook - Management indicated that CAPEX will correlate with business opportunities, and they will continue to invest as long as growth opportunities exist [26][27] Question: CoWoS Capacity - Management is working to increase CoWoS capacity to meet demand but did not provide specific numbers for 2026 [30] Question: Competition and Foundry 2.0 - TSMC is focusing on system performance and advanced packaging as part of its Foundry 2.0 strategy to enhance competitiveness [74][76] Question: Smartphone Prebuilt Concerns - Management expressed no concerns about prebuilt inventory levels, indicating they are healthy and seasonal [79]