TSMC posts record quarterly profit on AI demand, but wary about tariffs

By Wen-Yee Lee, Faith Hung and Ben Blanchard

TAIPEI (Reuters) -TSMC, the world's main producer of advanced AI chips, posted record, forecast-beating quarterly profit on Thursday but warned that future income might be hit by U.S. tariffs, though perhaps not until the fourth quarter. 

Saying demand for artificial intelligence was getting stronger and stronger, Taiwan Semiconductor Manufacturing Co predicted another leap in sales for the third quarter and hiked its revenue outlook for the full year. 

It also noted that key client Nvidia had recently been allowed by the U.S. government to resume sales to China of its H20 AI chip.

"China is a big market, and my customer can continue to supply the chip to the big market, and it's very positive news for them and in return it's very positive news for TSMC," Chief Executive C.C. Wei told a press conference.

But momentum for fourth-quarter earnings could be different.

"We are taking into consideration the possible impact of tariffs and a lot of other uncertainties, so we are becoming more conservative," he said, though he added that TSMC had yet to see any changes in customer behaviour so far.

A 60% SURGE

In April-June, net profit hit a historic high of T$398.3 billion ($13.5 billion), up 60.7% year-on-year and marking its fifth straight quarter of double-digit growth. That was well ahead of a T$377.9 billion LSEG SmartEstimate.

For the current quarter, it predicted a leap in revenue of up to 40% and for the full year, it now estimates revenue growth of around 30% in U.S. dollar terms, up from a previous forecast of "close to the mid-20s". 

But while sales are roaring, TSMC said the Taiwan dollar's appreciation against the U.S. dollar - around 12% so far this year - would dent margins.

Its third-quarter gross margin is expected to fall to between 55.5% and 57.5%, down from 58.6% in the second quarter, also hurt by TSMC's ramp-up of investment in new U.S. and Japanese factories.

However, the company stuck to its capital expenditure plan for the year of $38 billion to $42 billion, and Chief Financial Officer Wendell Huang said it was very unlikely such spending would suddenly drop going forward.

TSMC announced plans for a $100 billion U.S. investment with U.S. President Donald Trump at the White House in March, on top of $65 billion pledged for three plants in the state of Arizona, one of which is up and running.

But Trump has said semiconductor-specific tariffs could come soon. Taiwan was also threatened with a 32% reciprocal tariff rate in April, although it has yet to be notified of an updated figure that some countries have received.

TSMC's second-half earnings could also be affected if sales for Apple, another major customer, disappoint, said Allen Huang, a vice president at Taiwan's Mega International Securities Investment Services.

Apple typically launches new products in the fourth quarter.

"One warning sign is that Apple's sales in China have been soft," he said, adding that this was likely a factor in TSMC's caution about earnings towards the end of the year.

Taiwan-listed shares in TSMC surged some 80% last year but have climbed just 5% for the year to date on worries about tariffs and unfavourable currency exchange rates.

($1 = 29.4400 Taiwan dollars)

(Reporting by Wen-Yee Lee and Ben Blanchard; Editing by Anne Marie Roantree and Edwina Gibbs)