Taiwan Semi Puts Up Strong First Quarter, Gives Cautious Outlook

Image: Taiwan Semiconductor’s shares have rallied considerably since the October 2022 bottom.

By Brian Nelson, CFA

On April 18, Taiwan Semiconductor (TSM) reported better than expected first-quarter 2024 results. On a year-over-year basis, revenue advanced 16.5%, while both net income and diluted earnings per share increased 8.9%. On a U.S. dollar basis, first-quarter revenue increased 12.9% on a year-over-year basis. Taiwan Semi’s gross margin for the quarter came in at 53.1%, its operating margin was 42.0%, while its net profit margin was 38.0%.

During the first quarter, the company noted that shipments of 3-nanometer accounted for 9% of total wafer revenue, while shipments of 5-nanometer and 7-nanometer accounted for 37% and 19%, respectively in the quarter. Management noted that advanced technologies, which it defines as 7-nanometer and more advanced technologies, accounted for 65% of total wafer revenue.

Management had the following to say about its outlook for the second quarter and full year:

Based on the current business outlook, we expect our second quarter revenue to be between USD 19.6 billion and USD 20.4 billion, which represents a 6% sequential increase and 27.6% year-over-year increase at the midpoint. Based on the exchange rate assumption of USD 1 to TWD32.3, gross margin is expected to be between 51% and 53%, operating margin between 40% and 42%…

…Looking at the full year 2024, macroeconomic and geopolitical uncertainty persists, potentially further weighing on consumer sentiment and end-market demand. We thus expect the overall semiconductor market, excluding memory, to experience a more mild and gradual recovery in 2024…

…We lowered our forecast for the 2024 overall semiconductor market, excluding memory, to increase by approximately 10% year-over-year, while foundry industry growth is now forecast to be mid- to high-teens percent, both are coming off the steep inventory correction and/or base of 2023. Having said that, we continue to expect 2024 to be a healthy growth year for TSMC. 

All things considered, Taiwan Semiconductor put up decent first quarter 2024 results, and its outlook for the second quarter of the year was healthy, albeit not as strong as some investors might have liked. We like its pure-play foundry business, and while there was some cautious commentary on the conference call, we’re sticking with Taiwan Semiconductor as an idea in the ESG Newsletter portfolio.