Highlights

TSMC recently released its 2024 annual report, revealing that its Arizona subsidiary faced increased losses. Despite the Arizona plant commencing production in Q4, delays in revenue recognition led to losses swelling to NT$142.98 billion from NT$109.25 billion the previous year. The support from major clients like Apple and NVIDIA is expected to improve future capacity and reduce financial losses.

Sentiment Analysis

• The sentiment surrounding TSMC's latest report is mixed, with a significant focus on the stark financial losses incurred by its Arizona subsidiary. The notable support from major tech clients offers a glimmer of hope for future profitability.
• Investors are cautiously optimistic about TSMC’s long-term prospects given the expansion strategy and collaborations with leading tech companies. However, the immediate financial strain and the anticipated impact on profit margins remain noteworthy concerns.

Article Text

TSMC (2330-TW)(TSM-US) has published its latest 2024 annual report, highlighting the challenges faced by its subsidiary, TSMC Arizona Corporation. The inaugural semiconductor plant in Arizona began production last year, utilizing 4nm process technology. Despite this significant milestone, the transition from production to recognized revenue has led to an expansion in losses from NT$109.25 billion in 2023 to NT$142.98 billion in 2024.

The Arizona plant has garnered strong backing from at least five major clients, including Apple (AAPL-US), NVIDIA (NVDA-US), AMD (AMD-US), Broadcom (AVGO-US), and Qualcomm (QCOM-US). Industry experts anticipate that with increasing customer engagements and advancements in production capabilities at the subsequent second and third facilities, TSMC Arizona will eventually reach economic capacity and minimize its financial strain.

The second Arizona plant is nearing readiness, having completed structural construction. Current efforts focus on installing critical operational facilities such as cleanrooms and mechanical systems, with plans to deploy advanced 3nm process technology. Looking further ahead, TSMC has designs for a third Arizona facility that may engage 2nm or even more advanced technologies to better align with customer demands for cutting-edge semiconductor processes.

In addition to U.S. operations, TSMC’s other international subsidiaries, notably JASM in Japan and ESMC in Germany, reported similar trends of widening losses last year, escalating to NT$43.76 billion and NT$5.57 billion, respectively, up from previous figures of NT$29.66 billion and NT$0.18 billion.

As TSMC broadens its global footprint, operational expenses outside Taiwan remain significantly higher. The company anticipates that its planned $10 billion investment in Arizona could dilute profit margins due to foreign production logistics, initially affecting it by 2–3% annually over the next five years, potentially increasing to 3–4% in the long haul. However, TSMC remains determined to sustain long-term profitability above the 53% threshold, projecting strategic financial management in its international expansions.

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