TSMC Stock Gains After Q3 Performance - Here's Why

Taiwan Semiconductor Manufacturing Company Ltd TSM reported a third-quarter revenue decline of 14.6% year-on-year to $17.28 billion, beating the consensus of $17.07 billion. EPS of $1.29 beat the consensus of $1.17.

In Q3, shipments of 5 nm accounted for 37% of total wafer revenue, and 7- nm accounted for 16%. Advanced technologies, defined as 7-nm and more advanced technologies, accounted for 59% of total wafer revenue. 

The gross margin contracted by 610 bps to 54.3% due to lower capacity utilization and higher electricity costs. The operating margin declined by 890 bps to 41.7%. TSMC held $48.06 billion in cash and equivalents.

Outlook: The Apple Inc  AAPL and Nvidia Corp NVDA supplier expects Q4 revenue of $18.8 billion - $19.6 billion vs. consensus of $18.65 billion. It expects a gross margin of 51.5% - 53.5% and a 39.5% - 41.5% operating margin.

TSMC looks to spend $32 billion on growing and upgrading capacity in 2023, the lower end of a previously projected range but beating the analyst consensus of $30.5 billion.

CEO C. C. Wei acknowledged seeing early signs of demand stabilization in the PC and smartphone markets, the most significant segments for TSMC's business, during the conference call. He expects healthy growth in 2024, Bloomberg reports.

In the long term, TSMC is spending heavily on global chip plants. The company's $40 billion Arizona site was on track to start production in 2025's first half, while a Japanese plant is likely to begin mass output in late 2024.

Price Action: TSM shares traded higher by 3.90% at $93.09 premarket on the last check Thursday.