TSMC Beats Forecasts on Chips Related to AI

On Thursday, Taiwan Semiconductor Manufacturing Company (TSMC) reported impressive second-quarter profits and revenue, driven by a surge in sales of its most advanced chips, surpassing analysts' expectations.

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The strong performance lifted TSMC's shares after they had dropped the previous day due to concerns about tighter export controls on China and speculation that Donald Trump might be less inclined to defend Taiwan if re-elected. TSMC’s U.S.-listed shares rose 4% in premarket trading following an 8% decline on Wednesday, bringing the stock up 65% for the year.

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TSMC, headquartered in Hsinchu, announced a 40.1% increase in second-quarter sales, reaching NT$673.51 billion ($20.82 billion). Net income surged by 36.3% to NT$247.85 billion, resulting in earnings of NT$9.56 per share. Earnings per American Depositary Receipt (ADR) were $1.46, exceeding the FactSet consensus of $1.41.

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The company, which supplies semiconductors to major firms like Nvidia and Apple, attributed its strong second-quarter sales to high demand for its advanced 2 nm and 3 nm chips, which offset weaker demand from the smartphone sector. This led to a 28% increase in sales of high-performance computing (HPC) chips, used in AI technologies, mitigating a 1% decline in smartphone chip sales. HPC chip sales accounted for 52% of total revenue, while smartphone chip sales made up 33%.

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Wendell Huang, TSMC's Chief Financial Officer, stated, "Moving into the third quarter of 2024, we expect our business to be supported by strong smartphone and AI-related demand for our leading-edge process technologies." TSMC projected third-quarter sales between $22.4 billion and $23.2 billion and anticipated operating margins to rise from 42.5% in the second quarter to between 42.5% and 44.5% in the third quarter. Analysts surveyed by FactSet expected third-quarter sales of $22.6 billion with a margin of 42.1%.

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Inge Heydorn, a partner at GP Bullhound, told MarketWatch, "The main driver of the growth for the quarter was HPC demand, which was very strong, up 28% quarter-over-quarter, led by AI. Fundamentals for the industry look very strong with better top-line growth and margin development than anticipated."

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TSMC's shares plummeted on Wednesday amid a broader downturn in the chip sector due to investor concerns over escalating U.S.-China tensions. This downturn affected companies such as ASML Holding, Nvidia, Tokyo Electron, and Advanced Micro Devices. The slump followed reports from Bloomberg that the Biden administration is considering stricter export controls to prevent companies like ASML from selling advanced chipmaking technology to China.

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Adding to the pressure, Donald Trump's comments in a Bloomberg Businessweek interview cast doubt on his willingness to support Taiwan militarily and criticized the island for taking America's chip business.

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Despite these geopolitical concerns, TSMC's strong financial performance demonstrates the company's resilience and the growing demand for its advanced semiconductor technologies. As the industry navigates these challenges, TSMC remains well-positioned to capitalize on the increasing need for high-performance computing and AI-related technologies.

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