Financial Data and Key Metrics Changes - First quarter revenue decreased by 5.3% sequentially in NT dollars and 3.8% in U.S. dollars, impacted by smartphone seasonality, partially offset by HPC-related demand [6] - Gross margin increased by 0.1 percentage points sequentially to 53.1%, reflecting product mix changes due to smartphone seasonality [6] - Operating margin increased by 0.4 percentage points sequentially to 42% due to tighter expense controls, with total operating expenses accounting for 11.1% of net revenue [6] - First quarter EPS was TWD 8.7 and ROE was 25.4% [6] Business Line Data and Key Metrics Changes - Revenue contribution by technology: 3-nanometer process technology contributed 9% of wafer revenue, while 5-nanometer and 7-nanometer accounted for 37% and 19%, respectively [7] - Revenue contribution by platform: HPC increased by 3% quarter-over-quarter to account for 46% of revenue, smartphone decreased by 16% to 38%, IoT increased by 5% to 6%, automotive remained flat at 6%, and DCE increased by 33% to 2% [8] Market Data and Key Metrics Changes - Cash and marketable securities at the end of Q1 were TWD 1.9 trillion (USD 60 billion) [8] - Accounts receivable turnover days remained at 31 days, while days of inventory increased by 5 days to 90 days due to the ramp of 3-nanometer technologies [9] Company Strategy and Development Direction - The company plans to convert some 5-nanometer tools to support 3-nanometer capacity due to strong multiyear demand, expecting this conversion to dilute gross margin by about 1 to 2 percentage points in the second half of 2024 [22] - The 2024 capital budget is expected to be between USD 28 billion and USD 32 billion, with 70% to 80% allocated for advanced process technologies [23] - The company aims for a long-term gross margin of 53% and higher, despite the impact of foreign exchange rates and global manufacturing footprint expansion plans [32] Management's Comments on Operating Environment and Future Outlook - The company expects a gradual recovery in the overall semiconductor market in 2024, with a forecasted growth of approximately 10% year-over-year, while foundry industry growth is expected to be mid- to high-teens percent [26] - AI-related demand is anticipated to significantly contribute to revenue, with expectations for AI processors to double their revenue contribution this year [28] - The company acknowledges the impact of a 25% increase in electricity prices starting April 1, which is expected to dilute gross margin by 70 to 80 basis points in Q2 [21] Other Important Information - The company successfully managed the impact of a 7.2 magnitude earthquake on April 3, with no structural damage to fabs and a recovery of over 70% of tools within the first 10 hours [11][19] - The earthquake is expected to reduce Q2 gross margin by about 50 basis points due to wafer scraps and material loss [12] Q&A Session Summary Question: Demand outlook and semiconductor industry growth - The company has reduced expectations for overall semiconductor industry growth, primarily due to slower recovery in smartphone demand and traditional server demand remaining muted [35][39] - AI-related data center demand is very strong, with a shift in budget from traditional servers to AI servers [39] Question: Gross margin trends related to new technology nodes - The N3 process is expected to take longer to reach corporate average gross margin compared to previous nodes like N5 and N7, due to increased complexity and cost inflation [43][46] Question: AI returns and pricing strategy - The company is working to ensure it captures fair value in the AI value chain and is in discussions with customers regarding pricing adjustments [47][49] Question: Capacity allocation for AI customers - The company prioritizes customer success and is working to increase capacity, while also leveraging OSAT partners to meet demand [70][73] Question: 2-nanometer technology ramp-up - The meaningful revenue contribution from 2-nanometer technology is expected to start in early 2026, with a ramp profile similar to that of 3-nanometer [54][56]
TSMC(TSM) - 2024 Q1 - Earnings Call Transcript