Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) Q3 2019 Earnings Conference Call - Final Transcript

Oct 17, 2019 • 02:00 am ET

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Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) Q3 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Wendell Huang

quarter with cash and marketable securities of NT585 billion, a decrease of NT180 billion from the second quarter, mainly as we distributed NT207 billion of cash dividends for 2018.

On the liability side, current liabilities decreased by NT127 billion quarter-over-quarter as we distributed 2018 cash dividend and accrued another NT65 billion or NT2.5 per share for the second quarter 2019 cash dividend and that will be paid in January of next year. On financial ratios, accounts receivables turnover days decreased 1 day to 41 days. Days of inventory decreased 11 days to 65 days, reflecting higher wafer shipments during the quarter.

Now let me make a few comments on cash flow and CapEx. During the third quarter, we generated about NT142 billion of cash from operations, spent NT98 billion in capital expenditures and distributed NT207 billion of cash dividend. As a result, our overall cash balance decreased by NT197 billion to NT452 billion at the end of the quarter. In US dollar terms, our third quarter capital expenditures was USD3.14 billion.

I have finished my financial summary. Now let's turn to fourth quarter guidance. Based on the current business outlook, we expect our fourth quarter revenue to be between USD10.2 billion and USD10.3 billion, which is a 9% sequential increase at the midpoint. Based on the exchange rate assumption of USD1 to NT30.6, gross margin is expected to be between 48% and 50%. Operating margin is expected to be between 37% and 39%.

This concludes my financial presentation. Let me follow by making a few comments about 2019 capital expenditures and TSMC's long-term financial objectives.

I will first talk about our capital budget for this year. In TSMC, we build capacity according to our customer's demand. To forecast such demand, we take into consideration not only from each individual customer's indication, but also our own forecast based on macro, as well as market segment outlook.

Given the stronger outlook for 5G deployment next year, the demand for our 7-nanometer and 5-nanometer has increased significantly in the last few months.

We have therefore decided to raise our full-year 2019 CapEx by USD4 billion to meet this increased demand. We now expect our 2019 CapEx to be between USD14 billion and USD15 billion. About USD1.5 billion of the USD4 billion capex increase is for 7-nanometer capacity and USD2.5 billion is for 5-nanometer capacity. Although we're not able to give you our formal guidance for our next year's capex until next January, we currently plan next year's capex to be somewhat similar to our revised 2019 capex.

Now let me state our long-term financial objectives. As the company's new CFO, I'm happy to tell you that TSMC's long-term financial objectives remain the same. Our goal is to achieve revenue and net income CAGR in the next few years to be between 5% and 10% in US dollar terms. Gross margin to be about 50%, operating margin to be of 39% and ROE to be above 20%.

Regarding our cash dividend policy, we reiterate