TSMC Q1 2025 Earnings: AI-Fueled Growth Amid Tariff Clouds and Global Expansion

Q1 2025 Financial Performance Highlights

Taiwan Semiconductor Manufacturing Company (TSMC) opened 2025 with a surge in revenue and profit, driven by strong demand for advanced chips. For the first quarter ended March 31, 2025, TSMC reported consolidated revenue of NT$839.25 billion (US$25.53 billion)​pr.tsmc.com. This marked a 41.6% year-over-year increase in revenue (35.3% in USD terms)​pr.tsmc.com, reflecting a sharp rebound from the semiconductor downturn a year ago. Net income jumped to NT$361.56 billion, a 60.3% year-over-year rise​pr.tsmc.com, yielding a quarterly diluted EPS of NT$13.94 (approximately US$2.12 per ADR)​pr.tsmc.com. These results topped analyst expectations (consensus had anticipated NT$835.9 billion revenue and NT$13.61 EPS)​investopedia.com, underscoring TSMC’s outperformance.

On a sequential basis, as expected after a strong holiday quarter, revenue dipped 3.4% in NT$ (or -5.1% in USD) from Q4 2024​pr.tsmc.com. Management attributed this slight QoQ decline primarily to smartphone seasonality following year-end product launches, partially offset by continued strength in chips for artificial intelligence (AI). Despite this seasonal softness, Q1 revenue came in slightly above the midpoint of TSMC’s guidance range, indicating the quarter was a bit better than the company’s own forecast.

Profitability remained very robust. TSMC’s gross profit margin was 58.8% in Q1​pr.tsmc.com, essentially flat (-0.2 percentage points) versus the prior quarter. The operating margin was 48.5%​pr.tsmc.com, down only 0.5 points QoQ. These slight margin declines were attributed to one-off challenges and strategic costs: notably a January 21 earthquake in Taiwan that disrupted some wafer output, and the initial “dilution” from new overseas fabs (higher costs from ramping factories outside Taiwan). TSMC’s CFO Wendell Huang noted the earthquake and overseas fab start-up costs trimmed gross margin by about 0.6% in Q1, though cost improvement efforts helped offset part of that. The net profit margin for the quarter was a healthy 43.1%​pr.tsmc.com, illustrating TSMC’s ability to convert sales into earnings at an enviable rate.

TSMC’s financial position strengthened further. The company ended Q1 with cash and marketable securities of TWD 2.7 trillion (~US$81 billion) on its balance sheet, providing ample liquidity for expansion and shareholder returns. In Q1, TSMC generated TWD 626 billion (~US$20.5 billion) in cash from operations and spent TWD 331 billion (~US$10.1 billion) on capital expenditures as it builds new capacity. After paying out TWD 104 billion in dividends to shareholders during the quarter, TSMC’s cash still increased by TWD 267 billion, reflecting the significant free cash flow being produced. Such cash flow supports TSMC’s aggressive investment plans and a stable, rising dividend policy – which management reaffirmed as its preferred method of returning capital, rather than share buybacks.

Operational Highlights and Key Drivers in Q1

TSMC’s Q1 performance was underpinned by its technological leadership and broad end-market exposure. Advanced process technologies (7-nanometer and below) contributed 73% of wafer revenue​pr.tsmc.com, a testament to TSMC’s strength in cutting-edge nodes. The newest 3nm (N3) process accounted for 22% of total wafer revenue in Q1​pr.tsmc.com, as high-volume production for leading customers ramped up quickly. Meanwhile, the well-established 5nm node made up 36% of revenue and 7nm about 15%​pr.tsmc.com. The fact that 3nm already exceeded one-fifth of sales in its first few quarters of output highlights strong customer adoption of TSMC’s most advanced technology – likely driven by smartphone chips and accelerating AI/HPC chip orders.

From an end-market perspective, High-Performance Computing (HPC) was the standout driver. HPC-related demand (which includes chips for data centers, AI accelerators, GPUs, etc.) increased 7% quarter-on-quarter and accounted for 59% of Q1 revenue. This robust growth in the HPC segment was fueled by the surging needs for AI and cloud computing chips, which are built on leading-edge nodes. As CFO Huang noted, “continued growth in AI-related demand” helped counter softer areas, and TSMC expects “strong demand for our industry-leading 3nm and 5nm technologies” to continue into the next quarter​taiwannews.com.tw.

In contrast, the smartphone platform saw a 22% QoQ decline in revenue, making up 28% of Q1 sales (versus ~36% in Q4). This drop was largely seasonal – the first quarter is typically slower after the holiday surge in smartphone shipments (e.g. Apple’s iPhone chip orders naturally ease after Q4). TSMC cited “smartphone seasonality” as a headwind, though not an unexpected one​taiwannews.com.tw. Beyond seasonality, consumer electronics demand has been mixed, but there were some bright spots: the Digital Consumer Electronics (DCE) category (e.g. PCs, game consoles) ticked up 8% QoQ (1% of revenue), possibly as inventory digestion ended. The Internet of Things (IoT) segment was down 9% QoQ (5% of revenue) amid inventory adjustments. Automotive chips remained a growth area – auto platform revenue rose 14% QoQ to also contribute 5% of total sales, as demand from carmakers for advanced driver-assistance and EV chips stayed strong.

Operationally, TSMC managed to navigate some one-off challenges during the quarter. A magnitude 6+ earthquake struck Taiwan on January 21, 2025, temporarily disrupting production at TSMC fabs. The company “worked diligently to recover much of the lost production” in the following weeks. Thanks to effective mitigation, the net impact was limited – TSMC disclosed a wafer scrap loss of about NT$5.3 billion (after insurance) from the earthquake​taiwannews.com.tw, which is modest relative to quarterly revenue. This incident did contribute to slightly lower gross margin, but was largely absorbed without altering the full-year outlook.

TSMC’s inventory and utilization metrics reflected both the softer smartphone demand and preparation for future growth. Days of inventory (DOI) increased to 83 days, up from 80 days in Q4. The company indicated this build-up was “primarily due to the ramping of new overseas fabs” – essentially, TSMC is stockpiling more inventory as it brings new facilities online in places like Arizona and Japan. While higher inventory ties up some cash, it positions TSMC to meet customer demand quickly as orders recover, and to buffer any supply chain kinks as it expands globally.

In summary, TSMC’s Q1 was defined by a boom in advanced chip demand (especially for AI/HPC) even as consumer-linked segments remained in a digesting phase. The company executed well against operational hiccups (earthquake, customer seasonality) and still exceeded its financial guidance. These results set the stage for an optimistic outlook – tempered by awareness of macro risks – in the remainder of 2025.

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