Taiwan Semiconductor Manufacturing Co (TSMC) beat most analysts’ expectations with its second quarter report released earlier today, Tim Culpan of Bloomberg reports.

TSMC

TSMC’s revenue growth

TSMC, the world’s largest contract microchip manufacturer, posted a 24 percent growth in net revenues as smartphone sales went up 22 percent. Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), Sony Corporation (NYSE:SNE) (TYO:6758), and HTC Corp (TPE:2498) all released new smartphone models this previous quarter, causing worldwide sales to be higher than normal. TSMC’s margins also increased to 37 percent from 36.6 percent last year.

Despite this good news, TSMC saw its stock price dip slightly before the earnings report amid concerns about the PC market. The company predicts flat sequential growth between 3–5 percent as it adjusts its inventory to reflect current consumer demand, Digitimes reports. It’s operating margins could even see a slight decline during this process.

The stock has recovered since its earnings report became available, but some investors are still wary about how it will deal with declining PC sales. It’s telling that many analysts are neutral on a company that has just put up record net revenue.

While next quarter could be rocky, TSMC has a long-term plan based on its dominance in manufacturing chips for mobile phones and tablets.

Factors behind TSMC’s growth

One of the main factors behind TSMC’s growth is its ability to manufacture 28-nanometer chips, which are in high demand from mobile device manufacturers. Last quarter 29 percent of TSMC’s total revenue came from the 28 nm chips, up 5 percent from first quarter of the year, reports PC World. As PC sales slow and mobile sales continue to increase that proportion should only get larger.

There are even some reports that TSMC has signed a deal to start manufacturing chips for Apple Inc. (NASDAQ:AAPL). Taking a cut from every iPhone and iPad sale would obviously be a huge boost to the company if the deal pans out.

“Mobile devices have been important in driving demand in recent years,” TSMC CEO Morris Chang told investors. “We will continue to enjoy robust growth this year, as well as in the coming years.”

TSMC is also preparing for its next generation of chips, the 20-nanometer model, due out in early 2014, and a 16-nanometer chip slated for 2015. Producing smaller chips means that smart phones manufacturers will be able to improve speed by about 30 percent with each new design, providing app developers and users even more resources to work with.