Introduction
TSMC (NYSE: TSM), the world’s largest contract chipmaker, has reported impressive 2Q24 earnings, surpassing estimates and raising its outlook for the rest of the year.
The company’s performance highlights its dominant position in the semiconductor industry, driven by high demand for advanced technologies and AI applications.
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10 Major Takeaways from TSMC 2Q24 earnings results
1. 2Q24 Financial Highlights
TSMC’s 2Q24 results exceeded expectations with a gross margin of 53.2%, surpassing the long-term goal of maintaining a consistent 53%. The company’s net income reached NT $247.8 billion, significantly higher than the estimated NT $235 billion. This robust financial performance underscores TSMC’s operational efficiency and strong market demand for its products.
Capital expenditures (Capex) for the first half of 2024 totaled $12.13 billion. To meet the full-year target of $28 billion, the company plans to ramp up Capex in the second half of the year, aligning with the low-end of its guidance. This increase in investment reflects TSMC’s commitment to expanding its production capabilities and staying ahead in the competitive semiconductor market.
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2. Technological Advancements and Revenue Breakdown
TSMC’s N3 process, the most advanced in production today, contributed 15% of the company’s wafer revenue in 2Q24. This milestone highlights TSMC’s leadership in cutting-edge semiconductor technology, which is crucial for high-performance computing (HPC) and AI applications.
High-performance computing and AI made up 52% of TSMC’s net revenue, growing 28% sequentially. This growth demonstrates the increasing reliance on TSMC’s advanced process technologies in AI-driven applications. In contrast, the smartphone segment accounted for 33% of revenues but saw a 1% sequential decline, indicating a slight shift in market dynamics.
Revenue from the N3 process nearly doubled from the previous quarter, signaling strong demand for this advanced technology. Significant customers for this technology include industry giants such as Apple (NASDAQ: AAPL), Qualcomm (NASDAQ: QCOM), and AMD (NASDAQ: AMD), rather than NVIDIA (NASDAQ: NVDA). This diversification of clients enhances TSMC’s revenue stability and growth prospects.
3. 3Q24 Outlook and Capex Increase
For 3Q24, TSMC projects revenue between $22.4 billion and $23.2 billion, representing a 32% year-over-year increase. The company expects a gross margin of 53.5% to 55.5% and an operating margin of 42.5% to 44.5%. These projections reflect TSMC’s confidence in its ongoing technological advancements and strong market demand.
Additionally, TSMC has revised its 2024 Capex guidance from $28-$30 billion to $30-$32 billion, with 70% to 80% allocated for advanced technologies. This increased investment underscores TSMC’s commitment to maintaining its technological edge and meeting future market demands
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4. Positive Smartphone and AI Demand
TSMC CEO C.C. Wei expressed optimism about smartphone demand, stating,
“We expect our business to be supported by strong smartphone and AI-related demand for our leading-edge process technologies.”
He highlighted that smartphone-related demand will be a key growth driver in the second half of the year. This positive outlook is driven by the continued evolution of smartphone technologies and the integration of AI capabilities in mobile devices.
5. Progress on Future Fabrication Nodes
Wei also provided updates on TSMC’s next-generation fabrication nodes, N2 and A16. He noted that almost all AI innovators are collaborating with TSMC and expects to have more N2 customers than N3 and N5.
He emphasized that development for A16 is progressing ahead of schedule. This progress indicates TSMC’s ability to innovate and deliver next-generation technologies that meet the evolving needs of its customers.
6. CoWoS Advanced Packaging Demand
Discussing TSMC’s advanced packaging technology, CoWoS, which is essential for AI accelerators like those used by NVIDIA, Wei stated,
“The demand is so high, I have to work very hard to meet my customers’ demand. We continue to increase. I hope sometime in 2025 or 2026, I can reach a balance. The supply continues to be very, very tight all the way into 2025.”
This statement highlights the intense demand for advanced packaging solutions and TSMC’s efforts to scale its production capabilities.
7. Strategic Pricing Approach
On pricing, Wei reiterated that TSMC’s approach is strategic and continuous, not opportunistic. He acknowledged rising costs due to international expansion and high power prices in Taiwan but emphasized that TSMC aims to ensure its customers’ success alongside its own.
This balanced approach helps maintain customer trust and long-term partnerships while navigating market fluctuations.
8. Impact of Import Tariffs
With the recent increase in import tariffs by former President Donald Trump, Wei clarified that these tariffs are typically the responsibility of TSMC’s customers. This approach helps TSMC maintain its competitive pricing structure while navigating international trade challenges.
By passing tariff costs to customers, TSMC can focus on its core operations without compromising financial performance.
9. Overseas Expansion Plans
TSMC confirmed that it has not altered its original plans for overseas expansion. When asked about potential joint ventures with customers, the company firmly stated that it does not intend to pursue such partnerships.
This decision underscores TSMC’s commitment to maintaining control over its production processes and ensuring the highest standards of quality and innovation.
10. Long-Term Gross Margin Goals
Wei reaffirmed TSMC’s long-term gross margin target of “53% and higher,” underscoring the company’s commitment to maintaining robust profitability. He emphasized that discussions with customers always include the “and higher” portion, indicating confidence in achieving superior margins. This focus on high margins reflects TSMC’s strategic positioning in the market and its ability to command premium pricing for advanced technologies.
11. Revenue Recovery and Growth
TSMC’s revenues have rebounded strongly since the cyclical slump in 2022/2023, with HPC and AI contributing significantly. The company’s revenue has also doubled since 2020, showcasing its ability to capitalize on emerging technological trends and market demands. This remarkable growth trajectory positions TSMC as a critical player in the global semiconductor industry, driving innovation and economic progress.
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Conclusion
TSMC 2Q24 earnings report highlights the company’s strong financial performance, driven by advanced technologies and high demand for AI applications.
With an optimistic outlook for 3Q24 and increased Capex plans, TSMC is well-positioned to maintain its leadership in the semiconductor industry.
The company’s strategic approach to pricing, focus on advanced technologies, and commitment to equitable customer partnerships ensure its continued success in a rapidly evolving market.
