Taiwan Semiconductor Manufacturing - ADR

First Quarter Performance: TSMC reported first-quarter revenue of $25.5 billion, a decrease of 5.1% year-over-year, primarily impacted by smartphone seasonality but partially offset by strong AI-related demand. Gross margin decreased slightly to 58.8% and operating margin fell to 48.5%.

Second Quarter Outlook: TSMC expects a significant second-quarter revenue increase, projecting between $28.4 billion and $29.2 billion, a rise of approximately 13% quarter-over-quarter and 38% year-over-year at the midpoint. Guidance reflects strong demand for 3-nanometer and 5-nanometer technologies, driven particularly by high-performance computing (HPC).

Ongoing Impact from Global Expansion: The gross margin is expected to decline by 0.8 percentage points to around 58% in Q2, attributed to the commencement of operations in overseas fabs (Kumamoto and Arizona) and the associated cost structures. The company anticipates a long-term gross margin dilution of 2-3% per year due to these expansions, potentially widening to 3-4% as capacity ramps up.