Taiwan Semiconductor: 3nm and 5nm Nodes Drive Q4 Growth, Expands Margins, Issues Strong Q1 Outlook

Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world's largest contract chipmaker, reported robust financial results for the fourth quarter of 2024, driven by strong demand for its industry-leading 3nm and 5nm technologies. The company's revenue and margins expanded, and it issued a bullish outlook for the first quarter of 2025. This article explores the key factors contributing to TSMC's growth and the implications for its future prospects.



TSMC's business in the fourth quarter was supported by robust demand for its 3nm and 5nm technologies, which are in high demand for artificial intelligence (AI) and high-performance computing (HPC) applications. The company's 3nm chip shipments accounted for 26% of total wafer revenue in the fourth quarter, while shipments of 5nm and 7nm chips accounted for 34% and 14%, respectively. Advanced technologies, defined as 7nm and more advanced technologies, accounted for 74% of TSMC's total wafer revenue in the fourth quarter (Source: TSMC's Q4 2024 Earnings Call).

TSMC's revenue from orders for HPC devices accounted for 53% of revenue in the fourth quarter, up from 51% in the prior quarter and 43% during the same period in 2023. Revenue from smartphone chip orders declined 8% compared to the previous year to 35% in the fourth quarter of 2024. The IoT, automotive, digital consumer electronics, and other segments each represented 5%, 4%, 1%, and 2%, respectively (Source: TSMC's Q4 2024 Earnings Call).

TSMC's strong performance in the fourth quarter translated into a 15.2% increase in net profits compared to the previous quarter and a robust 57% increase compared to the same period last year, reaching NT$374.68 billion ($11.37 billion). Earnings per share (EPS) for the quarter came to NT$14.45, or $0.44 per ADR unit. The company's net sales for the fourth quarter grew 14.3% from the previous quarter and 38.8% compared to the same period in 2024, reaching NT$868.46 billion ($26.88 billion) (Source: TSMC's Q4 2024 Earnings Call).



For the first quarter of 2025, TSMC expects its business to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand. The company projects revenue between $25 billion and $25.8 billion, with a gross margin of 57-59% and an operating margin of 46.5-48.5%. TSMC also expects its capital expenditures for 2025 to be in the range of $38-42 billion, with 70% allocated to advanced process development, 20-30% to specialty technology, and 10-20% to packaging, testing, and other areas (Source: TSMC's Q4 2024 Earnings Call).



In conclusion, TSMC's dominance in the 3nm and 5nm nodes, along with strong demand for AI and HPC applications, drove its growth in the fourth quarter of 2024. The company's expanding margins and bullish outlook for the first quarter of 2025 indicate that TSMC is well-positioned to maintain its growth trajectory in the coming quarters. However, investors should remain aware of the geopolitical tensions and regulatory constraints that may pose challenges to TSMC's international expansion and supply chain management. As TSMC continues to invest in advanced process technologies and expand its global footprint, it remains a strong contender in the competitive semiconductor industry.