Taiwan Semiconductor Manufacturing Company (TSM) Q3 2020 earnings summary

Executive summary

• Q3 revenue reached TWD 356.4B ($12.1B), up 14.7% QoQ in TWD and 16.9% in USD; stronger-than-forecast demand spanned all platforms.

• Strong 5G smartphone and HPC demand, high utilization, and advanced-node leadership supported results; 2020 USD revenue growth forecast was raised to ~30%.

Financial highlights

• Gross margin rose 0.4 percentage points QoQ to 53.4%, above guidance; higher utilization more than offset initial N5 ramp dilution and unfavorable FX.

• Operating margin edged down 0.1 percentage points QoQ to 42.1%; operating expenses rose TWD 7.4B, reflecting N4/N3 development and one-time Hsinchu expansion expenses.

• EPS was TWD 5.3 and ROE 31.3%; cash from operations was ~TWD 190B and Q3 CapEx was TWD 99B ($3.4B).

Outlook and guidance

• Q4 revenue guided to $12.4B–$12.7B, a 3.4% sequential increase at midpoint; gross margin 51.5%–53.5% and operating margin 40.5%–42.5%, assuming USD/TWD 28.75.

• Q4 gross margin midpoint of 52.5% implies a 0.9-point QoQ decline, mainly from continued steep N5 ramp and less favorable FX.

• 2020 semiconductor market excluding memory forecast at mid-single-digit growth, foundry industry near 20% YoY, and USD revenue growth ~30%.

• N5 expected to contribute a higher share of wafer revenue in 2021; its gross margin dilution is forecast at 2–3 points for 2021, with the node reaching corporate margin after 7–8 quarters.

• Long-term gross margin goal remains above 50%; 2020 CapEx forecast is ~$17B, while capital intensity is expected around the mid-30% range longer term.