According to Money the White House might pull the plug on the exemptions that allow TSMC’s mainland Chinese fabs to use US technology. That alone would be enough to give any chip boss a migraine. But to make things worse, the new Taiwan dollar (NTD) has surged by 12 per cent this quarter. That jump has walloped TSMC’s gross and operating profit margins, slicing nearly five percentage points off each.
The currency swing has been especially brutal for a company that earns in US dollars and pays the bills in Taiwan. Legal analysts had forecast TSMC could push its gross margin to 58 per cent in the second half of the year. With the NTD on a charge, that prediction has now been pulled back to a more modest 55 per cent. Add in the shaky early yields from the upcoming 2nm ramp and it all smells a bit grim.
TSMC chairman Wei Zhejia told June’s shareholder meeting: “Exchange rate fluctuations will affect TSMC’s gross profit margin and operating profit ratio. For every per cent the NTD climbs, TSMC takes a 0.4 percentage point hit on both rates, which is a large amount.”
His only remedy was to keep pushing technological leadership and extracting proper value from it.
TSMC’s April forecast pegged quarterly revenue between $28.4 billion and $29.2 billion, a 13 per cent jump over the previous quarter. At the time, the bean counters used an assumed exchange rate of NT$32.5 to the US dollar. Last Friday, it closed at 29.529. That’s a pretty wide gap.
Apply Wei’s formula and the 12 per cent NTD rise since April has eaten a significant chunk out of both profit margins. With just six trading days left in June, the chances of a currency correction are next to nil.
Market watchers think TSMC might scrape through with its US dollar revenue targets. But on profitability, the outlook is grim. The gross and operating margins are likely to hit the lower end of forecasts and may not beat expectations. Best case, profits hold steady with last quarter. Worst case, they dip by a few points. Still, earnings per share are tipped to reach NT$13, which would be a record for the same quarter historically.
While AI and HPC demand has buoyed results, it doesn’t guarantee second-quarter profit growth. In past years such as 2023, 2021, 2018 and 2017, TSMC has seen second-quarter earnings fall compared to the first.
On the geopolitical front, foreign media reports say the US government might pull the rug out from under exemptions granted to TSMC, Samsung and SK hynix for using US technology in mainland China. If that happens, it could rattle TSMC’s mainland orders, though the exact fallout remains unclear.
TSMC is expected to spill the beans at its next earnings call in July, when it unveils last quarter’s results and provides an outlook. Expect a lot of questions and not many easy answers.