TSMC Earnings Guidance Grows Despite Supply Chain Woes

Taiwan Semiconductor Manufacturing Company (TSMC, NYSE: TSM) warned that supply-chain constraints will make meeting customer demand “tight” over the next year, even as it reported record earnings and improved guidance.

For the quarter ended March 31, 2022, TSMC posted revenue of US$17.57 billion, up 36% year-over-year and 11.6% sequentially. Net income and earnings per share (EPS) were up 22% sequentially and 45% year-over-year. Gross margin for the quarter was 55.6%; operating margin was 45.6%.

For next quarter, TSMC is guiding to between US$17.6 billion and US$18 billion, with gross margin to fall between 56% and 58% and operating margin between 45% and 47%.

HPC and Automotive Robust

Of its six product segments, TSMC says high-performance computing (HPC) components accounted for 41% of revenues this past quarter, up 26% sequentially; automotive chips also grew 26%, to account for 5% of revenue. Internet of Things (IoT) wares grew 5% to account for 8% of revenues; digital consumer electronics grew 8% to account for 3% of revenue. On the downside, smartphone revenues grew just 1%, though that segment counts for 40% of corporate sales.

Still, company officials are confident that TSMC will continue to grow revenues in the double digits for the foreseeable future. According to TSMC CEO C.C. Wei, demand, particularly in the areas of 5G and HPC, makes management confident of being able to deliver regular revenue growth in the “mid to high 20%” for the next few years.

Challenged Supply Chain

Despite demand, TSMC is facing delays and shortfalls in supplies coming from the vendors who make the tools needed to manufacture TSMC’s chips. “Like many other industries, our suppliers are facing great challenges in their supply chains from the continued impact of COVID-19, which are creating labor, component, and chip constraints in their supply chain and extending tool delivery time for both advanced and mature nodes,” said TSMC CEO C.C. Wei on the earnings call. Later, Wei also blamed supply-chain disruptions caused by “uncertainties brought about by geopolitical tensions.”

Indeed, TSMC faces its own geopolitical uncertainties as China continues to drive toward annexing the country. In part to address that issue, TSMC is aggressively pursuing expansion of its facilities internationally, and officials show no signs of reducing that push, which has led to increased capex for 2022 of between $40 billion and $44 billion for 2022, up from $30 billion in 2021.

TSMC is taking several actions to ameliorate the effects of the supply chain woes. It is closely communicating with suppliers, tracing the chains, sending teams out to help with delivery, and working with customers to plan manufacturing carefully to avoid stockpiling, according to CEO Wei.

Despite its supply chain challenges, TSMC seems prepared to do everything possible to control manufacturing to meet what it sees as robust demand across its key product lines. It’s a balancing act, and TSMC has proven exemplary in maintaining sizable profitability so far through the pandemic. Hopefully, its proven capabilities will carry it through the next difficult year.

TSMC shares closed down today, trading at $98.36 (−3.14, 3.09%).