Taiwan Semiconductor Manufacturing Company Limited Q2 FY2025 earnings call

• Second quarter gross margin slightly decreased due to unfavorable foreign exchange rate and margin dilution from overseas fabs, partially offset by higher capacity utilization and cost improvement efforts. - Third quarter gross margin expected to decrease due to continued unfavorable foreign exchange rate and more pronounced dilution from overseas fabs. - Global manufacturing footprint update: Announced intention to invest USD 165 billion in U.S. advanced semiconductor manufacturing, with first fab in Arizona in high-volume production, second fab complete, third fab under construction. - N2 and related technologies: N2 on track for volume production in second half 2025, N2P and A16 scheduled for later, A14 in development for 2028.

Second quarter revenue increased 11.3% sequentially in NT, with revenue in U.S. dollar terms up 17.8% sequentially to TWD 30.1 billion and exceeding guidance. Gross margin decreased 0.2 percentage points sequentially to 58.6%, operating margin increased 1.1 percentage points to 49.6%. EPS was TWD 15.36, up 60.7% year-over-year, ROE 34.8%. Revenue by technology: 3-nanometer contributed 24% of wafer revenue, 5-nanometer 36%, 7-nanometer 14%, advanced technologies (7-nanometer and below) 74%. Revenue by platform: HPC accounted for 60% of second quarter revenue, smartphone 27%, IoT 5%, automotive 5%, DCE 1%. Balance sheet: Ended with cash and marketable securities of TWD 2.6 trillion or USD 90 billion.

• Third quarter revenue expected between TWD 31.8 billion and USD 33 billion, 8% sequential increase. Gross margin between 55.5% and 57.5%, operating margin between 45.5% and 47.5%. - Maintain 2025 capital budget between USD 38 billion and USD 42 billion. - Full year 2025 revenue expected to increase ~30% in U.S. dollar terms supported by strong demand for 3-nanometer and 5-nanometer technologies.

• Unfavorable foreign exchange rates impacting revenue and gross margin. - Margin dilution from overseas fabs, with expected 2%-4% gross margin impact over 5 years. - Macro uncertainties including potential tariff policies affecting consumer-related and price-sensitive end markets.

Q: On demand, specifically data center AI demand, CoWoS capacity balance, on-device AI development, and near-term revenue decline.

A: Demand for AI is strong, CoWoS momentum healthy; on-device AI development continues with die size increase; near-term revenue guidance is conservative due to uncertainties.

Q: On margin, pricing reflecting value, and AI benefits in fabs.

A: Can adjust wafer pricing to offset cost increases, and AI is used in operations with productivity gains equivalent to USD 1 billion.

Q: On CapEx, capacity expansion, and N2 ramp.

A: CapEx invested for future opportunities, N2 ramp on track with better profitability than N3; revenue contribution from N2 expected to be bigger.

Q: On advanced packaging, humanoid robot impact, and capital intensity.

A: Prioritize advanced packaging based on customer needs; humanoid robot impact too early to determine; capital intensity related to future growth opportunities rather than fixed percentage.

Q: On overseas expansion, ITC impact, and regional investment.

A: U.S. fab ramp schedule driven by customer demand, ITC helps but real schedule is customer-driven; U.S. expansion doesn't impact Japan and Europe investments.