TSMC Is Starting To Become A US Centric Company

TSMC (TSM) Q1 earnings results came above expectation. Quarter to quarter and year over year comparisons of key metrics can be seen in the table below. Normally, the strength of the results would have led to a nice rise in the stock price but given the current tariff and trade war drama, most investors ignored the good news. This article summarizes the highlights.

First quarter revenue decreased 5.1% sequentially in US dollars due to smartphone seasonality, partially offset by continued growth in AI demand. The revenues were above the mid-point of the guidance despite the damage from the January 21 earthquake and aftershocks. The gross margin decreased 0.2 percentage points sequentially to 58.8%, primarily due to the earthquake impact, and dilution from overseas capacity ramp.

3nm revenues, driven primarily by Apple (AAPL) iPhone and secondarily by Intel (INTC) CPUs, dropped seasonally. It is interesting to note that more than 2 years after N3 production ramp began, Apple and Intel are the only major volume users of this node. While others, including Advanced Micro Devices (AMD), Nvidia (NVDA), and Qualcomm are ramping products at this node, it shows how Apple and smartphones drove TSMC’s leading edge process to date. This backdrop is significant in the context of newer processes as discussed later in the article.

5nm revenues, driven mainly by AI, saw no such weakness even with smartphones constituting a part of N5 shipments.

Advanced technologies, defined as 7 nanometer and below, accounted for 73% of wafer revenue. This percentage is roughly the same as last quarter and a reminder that TSMC is increasingly an advanced process company where it is relatively immune from competition. By the end of the year, it would not be surprising if 80% of TSMC revenues were from advanced processes. Looking at it in a different way, by year end, TSMC will not have any competition for 80% of its business and will be competing with other fabs for only 20% of its business.

Note from the table below that HPC’s share of TSMC revenues increased 6% quarter-over-quarter to account for 59% of Q1 revenue. Smartphone decreased from 35% to 28%. This is of course mostly due to Smartphone seasonality, but investors should not miss the fact that TSMC is increasingly not driven by Apple but by AI.

With the restrictions on shipments, Asia Pacific (mainly China) is starting to become a smaller and almost insignificant part of TSMC’s revenues. Both trends are likely to continue. In other words, TSMC is increasingly an AI driven and US driven business.

Guidance Is Strong Despite Lower Demand

Q2 revenue guidance of $28.8B +/- 0.4B is robust and represents a 13% sequential increase or a 38% year-over-year increase at the midpoint (note that 38% growth far exceeds the mid-20s 2025 growth guidance). The gross margin is expected to be between 57% and 59% - slightly lower than what we saw the last couple of quarters. Management attributed margin setback to Arizona fab ramp. Management sees the impact from overseas fab to grow more pronounced throughout the year as the Company ramps up Kumamoto and Arizona and forecasts a 2% to 3% margin dilution impact for the full year 2025.