TSMC(TSM) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 revenue increased 12.8% sequentially in NT, driven by strong smartphone and AI-related demand for 3nm and 5nm technologies [4] - Gross margin increased by 4.6 percentage points sequentially to 57.8%, reflecting higher capacity utilization and cost improvements [4] - Operating margin increased by 5 percentage points sequentially to 47.5%, with EPS at 12.54 NT and ROE at 33.4% [5] - Cash and marketable securities stood at 2.2 trillion NT ( $69 billion USD) at the end of Q3 2024 [6] - Q4 2024 revenue guidance is between$ 26.1 billion and $26.9 billion USD, representing a 13% sequential increase or 35% YoY increase at the midpoint [7] Business Line Data and Key Metrics - 3nm process technology contributed 20% of wafer revenue in Q3, while 5nm and 7nm accounted for 32% and 17% respectively [5] - Advanced technologies (7nm and below) accounted for 69% of wafer revenue [5] - HPC revenue increased 11% QoQ to account for 51% of Q3 revenue, while smartphone revenue increased 16% to account for 34% [5] - IoT revenue increased 35% to account for 7%, and automotive revenue increased 6% to account for 5% [5] Market Data and Key Metrics - AI-related demand, particularly for server AI processors, is expected to more than triple in 2024, accounting for mid-teens percentage of total revenue [11] - The company forecasts four-year revenue to increase by close to 30% in USD terms [11] - Overseas fabs in Arizona and Japan are progressing well, with volume production expected to start in 2025 and 2027 respectively [12][13][14] Company Strategy and Industry Competition - TSMC plans to invest slightly over$ 30 billion USD in 2024 CapEx, with 70%-80% allocated for advanced process technologies [9] - The company is leveraging its manufacturing technology leadership and large-scale manufacturing base to remain cost-effective in a fragmented globalization environment [15] - TSMC is expanding its global manufacturing footprint, with fabs in Arizona, Japan, and Germany, to meet customer needs and maximize shareholder value [12][13][14] Management Commentary on Operating Environment and Future Outlook - Management views AI demand as real and sustainable, driven by tangible ROI benefits from AI applications in productivity and efficiency [20][21] - The company expects strong demand for leading-edge process technologies to continue into Q4 2024 and beyond [10][11] - TSMC is confident in its ability to deliver the same level of manufacturing quality and reliability from overseas fabs as from its fabs in Taiwan [12][13] Other Important Information - Inventory days increased by four days to 87 days due to the pre-build of N3 and N5 wafers [6] - Electricity prices in Taiwan have risen significantly, with a 14% increase in October 2024, impacting gross margin by at least 1% [34] - Advanced packaging is expected to grow faster than the corporate average, accounting for high single-digit revenue in 2024 [75] Q&A Session Summary Question: AI Demand and Semiconductor Cycle - Management believes AI demand is real and sustainable, driven by productivity gains and efficiency improvements [20][21] - The semiconductor cycle is expected to continue growing, with AI demand just beginning and expected to last for many years [24][25] Question: CapEx Growth - TSMC expects 2025 CapEx to be higher than 2024, driven by strong growth opportunities and healthy demand [28] Question: Gross Margin Outlook for 2025 - Factors impacting 2025 gross margin include reduced dilution from N3 ramp, higher electricity prices, and preparation costs for N2 [33][34] Question: Pricing Strategy and Antitrust Concerns - TSMC views its customers and suppliers as partners and does not see antitrust concerns due to its market share [44][45][48] Question: IDM Outsourcing Opportunities - TSMC is not interested in acquiring IDM fabs but continues to receive business from IDMs, including Intel [53] Question: Long-Term Growth Outlook - TSMC expects healthy growth over the next five years, driven by strong AI demand and advanced technologies [57][62] Question: Power Challenges and Nuclear Power - TSMC is working closely with the Taiwanese government to ensure sufficient electricity, water, and land for its fabs, but has not yet considered nuclear power [68] Question: PC and Mobile Demand - PC and smartphone demand is expected to grow at a low single-digit rate, with AI-related content driving silicon area growth [72] Question: Advanced Packaging Growth - Advanced packaging is expected to grow faster than the corporate average, with margins approaching but not yet at corporate levels [75] Question: Dividend Policy and Capital Allocation - TSMC's dividend policy is sustainable and steadily increasing, with a focus on organic growth and shareholder returns [78][79] Question: Foundry 2.0 Model - Advanced packaging and leading process nodes are expected to drive stronger growth within the Foundry 2.0 model [82] Question: Global Semiconductor Revenue Forecast - TSMC's forecast for global semiconductor revenue remains unchanged, with growth expected to be around 10% [86] Question: CoWoS Capacity Build - CoWoS capacity is being aggressively expanded, but customer demand still exceeds supply [91]