What happened

Shares of Taiwan Semiconductor Manufacturing (NYSE:TSM) gained 12.7% in July of 2018, according to data from S&P Global Market Intelligence. The world's largest chipmaking foundry can pin these gains on a solid second-quarter report.

So what

In the second quarter, TSMC's revenues rose 9% in local currencies, or 9% in U.S. dollars. This result matched Wall Street's estimates. On the bottom line, earnings increased by 9%, to land at $0.47 per ADR, exceeding the analyst view by $0.01 per share.

Looking ahead, TSMC sees weak demand for cryptocurrency mining chips but a rebound in smartphone processor orders, potentially pointing to stronger growth in 2019 and beyond.

An uncut silicon wafer in the process of becoming several dozen semiconductor chips.

Image source: Getty Images.

Now what

In the meantime, TSMC's production volumes and revenue-generating shipments are slowing down in the back half of 2018 as the company ramps up its next-generation 7-nanometer manufacturing capacity. Since these smaller chip traces should allow TSMC to get more processors out of every square inch of wafer materials, the upgrade is an important part of the company's never-ending cost-cutting ambitions.

That's why analysts and investors weren't terribly disappointed to see relatively modest results in the middle of 2018. TSMC is simply making sure that it can stay healthy and competitive in the long run.

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