Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) Q4 2019 Earnings Conference Call - Final Transcript

Jan 16, 2020 • 01:00 am ET


Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) Q4 2019 Earnings Conference Call - Final Transcript


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Jeff Su

[Foreign Speech] Happy New Year to everyone and welcome to TSMC's Fourth Quarter 2019 Earnings Conference and Conference Call. This is Jeff Su, TSMC's Deputy Director of Investor Relations and your host for today. Today's event is webcast live through TSMC's website at www.tsmc.com. If you are joining us through the conference call, your dial-in lines are in listen-only mode. As this conference has been viewed by investors around the world, we will conduct this event in English only. The format for today's event will be as follows. First, TSMC's Vice President and CFO, Mr. Wendell Huang will summarize our operations in the fourth quarter of 2019 and the full-year of 2019, followed by our guidance for the first quarter of 2020. Afterwards, Mr. Huang and TSMC's CEO Dr. C.C. Wei will jointly provide the company's key messages. Then, TSMC's Chairman Dr. Mark Liu will host the Q&A session, where all three executives will entertain your questions.

For those participants on the call, if you do not yet have a copy of the press release, you may download it from TSMC's website at www.tsmc.com. Please also download the summary slides in relation to today's earnings conference presentation.

As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. So please refer to the safe harbor notice that appears on our press release.

And now, I would like to turn the microphone over to TSMC's CFO Mr. Wendell Huang for the summary of operations and the current quarter guidance.

Wendell Huang

Thank you, Jeff. Happy New Year everyone. Thank you for joining us today. My presentation will start with financial highlights for the fourth quarter and the recap of full-year 2019. After that, I will provide the guidance for the first quarter of 2020. Fourth quarter revenue increased 8.3% sequentially to TWD317 billion, driven by high-end smartphones, initial 5G deployment and HPC-related applications using TSMC's industry-leading 7 nanometer technology. Gross margin increased 2.6 percentage points sequentially to 50.2%, thanks to a higher level of capacity utilization and continuous cost improvement, partially offset by an unfavorable foreign exchange rate. Total operating expenses increased by TWD3.6 billion, reflecting higher development activities for 5 nanometer and 3 nanometer, as well as opening expenses in preparation for 5 nanometer ramp. Operating margin increased by 2.4 percentage points sequentially to 39.2%. Overall, our fourth quarter EPS reached TWD4.47 and ROE was 28.9%. Now let's take a look at revenue by technology. 7 nanometer process technology continue to ramp strongly and accounted for 35% of wafer revenue in the fourth quarter. 10 nanometer was 1% and 16 nanometer was 20%. Advanced technologies, defined as 16 nanometer and below, accounted for 56% of wafer revenue, up from 51% in the third quarter. On a full-year basis, 7 nanometer contribution increased from 9% in 2018 to 27% of wafer revenue in 2019. 10 nanometer was