TSMC Forecasts 54% Net Profit Surge Amid Trade Uncertainty

Taiwan Semiconductor Manufacturing Company (TSMC), a leading manufacturer of high-end chips for artificial intelligence (AI) applications, is expected to report a significant increase in net profit for the first quarter of this year. Analysts predict that the company's net profit may surge by 54%, driven by the growing demand for advanced semiconductor technology, particularly in the AI sector. TSMC's dominance in the production of high-end chips has positioned it as a critical player in the global technology supply chain, with major clients including Apple and NVIDIA.

However, this positive outlook is overshadowed by potential risks stemming from the trade policies of former U.S. President Donald Trump. The uncertainty surrounding these policies poses a significant threat to TSMC's operations and financial performance. The 's aggressive stance on trade has led to increased tariffs and trade barriers, which have disrupted global supply chains and created uncertainty for companies operating in multiple regions. For TSMC, which has significant operations and customers in the U.S., the potential for further trade restrictions could have a profound impact on its business.

TSMC's financial performance is expected to be robust, with a projected net profit of approximately 3478 billion New Taiwan dollars (about 107.4 billion U.S. dollars) for the quarter ending March 31. This represents a significant increase from the 2255 billion New Taiwan dollars reported in the same period last year. The company's strong financial performance is attributed to the widespread adoption of AI functionalities in online products, which has driven demand for high-end chips.

Despite the promising financial outlook, TSMC faces dual challenges: navigating the impact of Trump's import tariff policies and addressing criticisms of its dominant position in the semiconductor industry. The company has announced plans to invest hundreds of billions of dollars in overseas manufacturing facilities, with a significant portion of this investment earmarked for the construction of three semiconductor fabrication plants in Arizona. This move is part of TSMC's strategy to mitigate geopolitical risks and secure favorable treatment from the U.S. government.

Trump's stance on the semiconductor industry has been contradictory, with both praise and threats of increased tariffs. Last week, he warned TSMC that it could face a 100% tax rate if it did not establish manufacturing facilities in the U.S. Additionally, Trump indicated that the current tariff exemptions for Chinese smartphones and computers are only temporary, and he plans to initiate a national security trade investigation into the semiconductor industry. This uncertainty adds to the challenges faced by TSMC as it seeks to maintain its competitive edge and sustain its growth trajectory.

Analysts suggest that TSMC may need to increase its investment in overseas semiconductor fabrication plants to mitigate geopolitical risks and reduce its exposure to tariffs. This strategy would not only help TSMC secure favorable treatment from the U.S. government but also minimize the impact of potential trade restrictions on its operations. However, this approach could also result in a 2-3 percentage point reduction in the company's gross profit margin over the next five years.

Another potential risk for TSMC is its reliance on the production of iPhones in China. If the sales of iPhones decline, it could have a significant impact on TSMC's chip sales, as the company is a key supplier to Apple. This interdependence highlights the need for TSMC to diversify its customer base and reduce its reliance on a single market or product.

In conclusion, while TSMC's first-quarter financial results are expected to be strong, the company faces significant challenges due to the uncertain trade policies of the former U.S. president. TSMC's ability to navigate these challenges and adapt to the evolving global trade dynamics will be crucial in maintaining its competitive edge and sustaining its growth trajectory. The company's management will need to remain vigilant and proactive in addressing these risks to ensure its continued success in the semiconductor industry.