Taiwan Semiconductor Benefiting from Strong Smartphone and AI Demand

Image: Taiwan Semiconductor released better than expected results.

By Brian Nelson, CFA

Taiwan Semiconductor (TSM) reported excellent third quarter results on October 17. In the quarter, consolidated revenue came in at NT$759.69 billion, net income was NT$325.26 billion while diluted earnings per share was NT$12.54 (US$1.94 per ADR unit), all coming in ahead of expectations. On a year over year basis, revenue grew 39%, while net income and diluted earnings per share increased 54.2%. On a sequential basis, revenue advanced 12.8%, while net income leapt 31.2% higher. Return on equity was 33.4% in the quarter, up 7.6 percentage points on a year-over-year basis.

On a US-dollar basis, third quarter revenue of $23.5 billion advanced 36% year-over-year, ahead of guidance calling for the range of $22.4-$23.2 billion, while revenue increased 12.9% from the second quarter of 2024. Gross margin in the quarter was 57.8% (guidance called for the range of 53.5%-55.5%), operating margin was 47.5% (guidance called for the range of 42.5%-44.5%), and net profit margin was 42.8%. In the period, shipments of 3-nanometer accounted for 20% of total wafer revenue, 5-nanometer accounted for 32%, while 7-nanometer accounted for 17%. The balance of revenue came from 7-nanometer and more advanced technologies.

Management commentary was upbeat in the press release:

Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry-leading 3nm and 5nm technologies. Moving into fourth quarter 2024, we expect our business to continue to be supported by strong demand for our leading-edge process technologies. 

Taiwan Semiconductor ended the quarter with NT$2,167.6 billion in cash and marketable securities against long-term interest-bearing debt of NT$936.16, showcasing a nice net cash position. Free cash flow in the quarter advanced to NT$184.91 billion from NT$68.03 in the year-ago period. Looking to the fourth quarter of 2024, revenue is targeted in the range of US$26.1 billion and US$26.9 billion (consensus was at US$25.02 billion), while gross profit margin and operating profit margin, based on the exchange rate assumption of 1 US dollar to 32 NT dollars, are expected to be 57%-59% and 46.5-48.5%, respectively. We liked Taiwan Semiconductor’s results and outlook, and the company remains a key idea in the ESG Newsletter portfolio.

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