Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Third quarter revenue increased by 12.8% sequentially, driven by strong demand for smartphone and AI-related technologies.
- Gross margin improved by 4.6 percentage points to 57.8%, reflecting higher capacity utilization and cost improvements.
- Advanced technologies (7nm and below) accounted for 69% of wafer revenue, showcasing TSMC's leadership in cutting-edge processes.
- TSMC's cash and marketable securities reached TWD2.2 trillion, indicating strong financial health.
- TSMC expects fourth-quarter revenue to increase by 13% sequentially, with a 35% year-over-year growth at the midpoint.
Negative Points
- Inventory days increased by four days to 87 days, primarily due to prebuilding of N3 and N5 wafers.
- Higher electricity prices in Taiwan are expected to impact gross margins by at least 1%.
- Overseas fab costs are higher, leading to a 2%-3% gross margin dilution as new fabs ramp up.
- The company faces challenges in meeting the high demand for CoWoS capacity, despite plans to double capacity.
- TSMC's overseas fabs, such as those in Arizona and Japan, are expected to have lower profitability initially due to smaller scale and higher costs.
Q & A Highlights
Q: How does TSMC view the trend of AI investments, and what gives you confidence in its sustainability? Also, how do you see the current semiconductor cycle?
A: C.C. Wei, Chairman and CEO, stated that AI demand is real and sustainable. TSMC has extensive engagement with AI innovators and sees tangible ROI benefits from AI applications. The current semiconductor cycle is just beginning, with strong AI demand expected to continue for many years.
Q: What is TSMC's outlook on CapEx growth in the coming years, given the strong demand?
A: Wendell Huang, CFO, mentioned that while they do not have a specific number for 2025 CapEx, TSMC uses a disciplined approach to determine capacity needs. As long as growth outlook remains strong, CapEx will likely increase, with more updates expected in January.
Q: How should we think about TSMC's gross margin outlook into 2025, considering overseas expansion and other factors?
A: Wendell Huang explained that while overseas fabs will dilute gross margins by 2%-3%, factors like reduced N3 ramp dilution and healthy growth will help. However, rising electricity costs and foreign exchange rates could impact margins.
Q: What is TSMC's strategy regarding pricing and potential antitrust concerns, given its strong market position?
A: C.C. Wei emphasized that TSMC views customers and suppliers as partners and focuses on value selling. The company requires high gross margins due to its capital-intensive nature and does not foresee antitrust issues as it operates in a competitive market.
Q: Can you provide an update on TSMC's long-term growth outlook, especially with the strong AI demand?
A: C.C. Wei noted that while they do not have a new long-term CAGR number, the next five years are expected to be healthy. The robust AI demand could potentially lead to faster growth, but specific figures are not yet available.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
