The tariff war has temporarily paused, but the biggest challenge currently facing the semiconductor and technology industries is the sharp appreciation of the New Taiwan dollar (NT$). Industry insiders suggest that this dramatic currency shift may be influenced by political forces, making it difficult for most companies to avoid profit margin and earnings erosion despite flexible hedging strategies.
Taiwan's export value in April reached the second-highest monthly level on record, with exports in the first four months increasing 20.6% year-over-year. Listed companies reported a 15.37% growth in April revenues, exceeding expectations, and performance is expected to remain solid in May. The reciprocal tariffs initiated by US President Donald Trump on April 2, 2025, have so far had a manageable impact on the supply chain.
The semiconductor supply chain notes that after the US announced a 90-day exemption period on April 10 and China-US tensions eased temporarily with mutual tariff reductions, global market anxiety has somewhat subsided. Although Trump later targeted South Africa and the European Union with new measures, the inconsistent policies have left markets largely desensitized.
Countries are still awaiting further negotiations while accelerating shipment schedules and volumes to frontload growth momentum for the second half of the year. However, due to uncertain geopolitical and economic conditions as well as market demand, there is cautious sentiment about the outlook beyond the 90-day tariff exemption, with potential volatility expected again in July.
NTD appreciation poses major profit risk
Industry sources emphasize that tariffs are only temporary relief; the unexpected violent appreciation of the NT$ poses a much greater threat, directly and rapidly impacting corporate profits. Many companies expect foreign exchange losses in the second quarter that could exceed expectations.
For example, Foxconn slightly revised its first-quarter earnings forecast, attributing the adjustment to currency effects. Chairman Young Liu estimates that an NT$1 appreciation against the US$ would reduce revenue by approximately 3% and gross margin by 0.1%.
The market is also concerned about Largan. The exchange rate moved from NT$32.27 in the third quarter of 2023 to NT$30.705 at the end of the fourth quarter, reaching NT$2.85 billion in non-operating foreign exchange losses. Given the even stronger appreciation of the NTD, Largan's foreign exchange losses may hit record highs.
Within the semiconductor industry, integrated circuit design and IP firms experience relatively less impact from exchange rates because their costs are mostly USD-denominated, providing some natural hedging. In contrast, ASE estimates that every NT$1 appreciation reduces its packaging and testing business gross margin by about 1.5%.
Foundry operations are also significantly affected. UMC acknowledges that tariff policies make economic forecasts more unpredictable, and confirms that exchange rate factors negatively affect performance. Since UMC's revenue is USD-based, its revenue performance directly reflects the extent of NTD appreciation, with an estimated 0.4% erosion in gross margin per 1% currency gain.
TSMC, whose revenue is almost entirely denominated in US dollars (US$), is bearing the brunt of this currency strength. It is estimated that a 1% appreciation of the NTD against the USD will reduce TSMC's operating margin by 0.4%. The current exchange rate has already fallen into the low 20s, more than NT$2.5 (US$0.083) lower than the assumed rate of NT$32.5 provided during the April earnings briefing.
TSMC chairman C.C. Wei is expected to address concerns related to tariffs, the appreciating NTD, and overseas expansion at the shareholders' meeting scheduled for June 3, 2025.
Revenue assumptions under pressure
Market analysts believe TSMC's second-quarter revenue guidance was based on an assumed exchange rate of US$1 to NT$32.5, projecting gross margins between 57% and 59%, and operating margins between 47% and 49%. With the current rate differing by over NT$2.5 from this assumption, the impact is significant.
However, TSMC benefits from near-full utilization of its 3nm and 5nm process capacities through the third quarter, and high-value 2nm production has begun. Strong AI demand and pre-established price increases for these processes should help mitigate the currency headwinds.
Currently, TSMC shows no signs of revising its overall financial forecast. Tariffs and NTD appreciation will be key topics at the shareholders' meeting on June 3. This will be Wei's first time presiding over the meeting since taking office, where he is expected to explain risks and the latest strategic decisions.
Expansion plans and global strategy under scrutiny
In addition to tariffs and currency issues, shareholders are likely to ask about TSMC's plans to build a plant in the United Arab Emirates. Prior to this, TSMC reportedly declined a lucrative invitation from Qatar. Questions may also focus on how US manufacturing facilities affect operations, amid rumors that these projects have delayed factory construction plans in Japan and Germany.
Furthermore, TSMC recently consolidated its six-inch and eight-inch fabs in Hsinchu Science Park, significantly restructuring personnel and operations. It is estimated that around one thousand employees will be redeployed to other sites.
Article edited by Jack Wu
