Taiwan Semiconductor’s Results Showcase Strong Growth

Image Source: TSM

By Brian Nelson, CFA

Taiwan Semiconductor (TSM) reported better than expected fourth quarter results January 16, with revenue and GAAP earnings per share coming in above the consensus forecast. The company reported consolidated revenue of NT$868.46 billion, net income of NT$374.68 billion, and diluted earnings per share of NT$14.45 (US$2.24 per ADR unit) in the fourth quarter of 2024. On a year-over-year basis, fourth quarter revenue increased 38.8%, while net income and diluted earnings per share both increased 57%. In U.S. dollars, fourth quarter revenue was $26.88 billion, up 37% on a year-over-year basis and at the high end of management’s guidance.

TSM’s foundry operations continue to put up elevated levels of profitability. Gross margin for the fourth quarter was 59% (at the high end of its guidance range), operating margin was 49% (above the high end of its guidance range) and net profit margin was 43.1%. As it relates to the breakdown of shipments, 3-nanometer accounted for 26% of total wafer revenue, 5-nanometer accounted for 34%, 7-nanometer accounted for 14%, while advanced technologies (which it defines as 7-nanometer and more advanced technologies) accounted for 74% of total wafer revenue. Return on equity in the quarter was a very healthy 36.2%. For the full year, ROE was 30.3%.

Management had the following to say about the quarterly results:

Our business in the fourth quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies. Moving into the first quarter 2025, we expect our business to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand.

TSM’s free cash flow in the quarter was NT$258.26 billion, up from NT$224.67 billion in the year-ago period. For the full year, free cash flow was NT$870.17 billion, nearly tripling on a year-over-year basis, and well in excess of cash dividends paid of NT$363.05 billion over the same time period. TSM ended the quarter with NT$2,422 billion in cash and marketable securities and NT$958.43 billion in long-term interest-bearing debts, good for solid net cash position.

Looking to the first quarter of 2025, TSM expects revenue to be between US$25-US$25.8 billion based on the exchange rate assumption of 1 U.S. dollar to 32.8 NT dollars. This was above consensus calling for US$24.75 billion in revenue in the quarter. Gross profit margin is targeted between 57% and 59%, while operating profit margin is expected to be between 46.5%-48.5%. All told, we continue to like TSM’s strong top-line growth and free cash flow generation, and the firm remains a core idea in the ESG Newsletter portfolio.

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