TSMC’s fourth quarter revenue grew by 38.8% and ahead of market forecasts to $26.9bn when ignoring currency moves. The uplift was supported by strong demand for high performance computing which increased its share of the mix from 43% to 53%.
Operating profit increased by 63.6% to $13.2bn, helped by an improved gross margin and operating expenses that grew at a slower pace than revenue.
The improved operating performance and stable investment expenditure saw free cash flow nearly treble to $27.1bn.
In 2025 revenue is expected to grow towards the mid-twenties range. AI demand was called out as a key growth driver and that part of the business is expected to grow at an average rate towards the mid-forties over the next five years. Capital expenditure in 2025 is expected to rise from $29.8bn to $38-$42bn.
TSMC paid out $11.3bn in dividends over the quarter, an increase of 37.6%.
Currency = US dollar.
The Taiwan listing of the shares was up by 3.8% following the announcement.
Our view
Taiwan Semiconductor Manufacturing Company’s (TSMC) fourth quarter results and bullish long-term outlook was received well by investors. The company is the world’s leading semiconductor foundry. It doesn’t design its own microchips but manufactures and assembles integrated circuits for clients such as NVIDIA, ARM and Apple.
But TSMC is more than just a metal basher. Microchips are one of the most complex devices known to man and they’re getting ever more intricate. TSMC’s dominance is underpinned by technology leadership and manufacturing excellence leaving it well-placed to benefit from some major technological shifts. That’s feeding through to impressive growth numbers. Demand for artificial intelligence is booming, and TSMC is broadening its product and service offerings for designers of systems that can process data, solve problems, and make decisions.
The proliferation of connected devices, and data heavy endeavours such as drug discovery, blockchain and autonomous driving are other tailwinds for high performance computing (HPC) components. This puts some weight behind TSMC’s expectation for average revenue growth approaching 20% over the long-term. HPC’s contribution to revenues has rapidly grown to over 50% and we think there’s more to come.
There are other risks to be mindful of too. TSMC is well ahead of the pack in terms of capabilities and efficiency. But there are some well-funded players chasing the same prize. That means it can’t stand still in this incredibly fast-moving industry, with progress driving a new generation of chip technology every couple of years.
TSMC’s expansion plans are well supported by a strong balance sheet as well as impressive cash-flows, so it’s well placed to cope if it does encounter some growing pains. But they won’t go unnoticed by the market. Constant evolution can be a drag on profits especially if demand for the most densely packed circuits fail to meet expectations.
The geopolitical environment is also a factor that needs close monitoring. Tension between Taiwan and China is an ever-present threat but the immediate focus is what the arrival of Donald Trump could mean for the sector. We see TSMC’s efforts to diversify its operations beyond Taiwan as a step in the right direction, but the potential for political obstacles like tariffs and further trade restrictions remains heightened.
While the valuation is above the long-term average, we still don’t think it fully reflects the quality of the business or the growth opportunity. Given the challenges identified, investors must be willing to accept some uncertainty, there are no guarantees.
Additional research by Callum Heath
Environmental, social and governance (ESG) risk
The semiconductor sector is medium-risk in terms of ESG. Overall, this risk is managed adequately in Europe and North America but has considerable room for improvement in the Asia-Pacific region. Its reliance on highly-specialised workers means labour relations is one of the key risk drivers. Other risks worth monitoring include resource use, business ethics, product governance, and carbon emissions.
TSMC’s management of ESG risks is rated strong by Sustainalytics.
TSMC has a company-wide target to reach net zero by 2050, and plans to use 40% renewable energy for all fab operation sites by 2030. Its latest products promise to deliver substantial energy efficiencies for end users. TSMC incorporates water scarcity and flooding into its enterprise risk management, but its water intensity is well above the industry median, suggesting there is room for improvement. Skill shortages are an industry-wide issue, but TSMC has a strong commitment to talent development and staff retention has been moving in the right direction.
TSMC key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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