Taiwan Semiconductor has poured cold water on hopes of another chip recovery. The world’s largest contract chipmaker is still struggling with a drop in demand for electronic devices and its report has hit sentiment for chip stocks such as Intel and
Nvidia
.
Taiwan semiconductor (ticker: TSM) dominates the market for high-end chips and its stock has benefited from the enthusiasm generated by artificial intelligence applications. However, for now, he is feeling the effects of a drop in purchases smartphones and other devices as it reported its first annual quarterly profit decline in four years on Thursday.
TSMC manufactures the main processors inside
(AAPL) iPhones, Qualcomm (QCOM) mobile chipsets and processors manufactured by Advanced Micro Devices (AMD).
“Our business in the second quarter was impacted by overall global economic conditions, which dampened end-market demand and led to continued customer inventory adjustment,” Chief Financial Officer Wendell Huang said in a statement.
While TSMC should eventually benefit from the growth of AI chips, being a key supplier to Nvidia (NVDA), the market is still currently too small to compensate for the drop in demand for smartphones and PCs. TSMC’s revenue from smartphones fell 9% from the prior quarter.
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TSMC’s US Certificates of Deposit fell 3.3% in premarket trading Thursday, after rising 38% this year at Wednesday’s close. Its main American rival
(INTC) fell 1.9%. Nvidia fell 1.1%.
TMSC said its second-quarter profit was T$181.80 billion ($5.84 billion), down from T$237.03 billion for the same period in 2022. Revenue fell 10% to T$480.84 billion. Revenues in US dollars were $15.68 billion, down 14% from the same period last year.
“Going into (the) third quarter of 2023, we expect our business to be supported by the strong ramp-up of our 3-nanometer technologies, partially offset by continued customer inventory adjustment,” Huang said.
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TSMC said it expects third-quarter revenue of between $16.7 billion and $17.5 billion and an operating profit margin of between 38% and 40%.
TSMC reiterated its forecast for capital spending to be at the lower end of a previously forecast range of $32 billion to $36 billion as it continues his investment in Arizona. TSMC faces a challenge in chipmaking from Intel, which hopes its strategy of locating its sites around the world could attract customers worried about the future of Taiwan, which China sees as a breakaway province it intends to unify with the mainland.
Wedbush analyst Matt Bryson said forecasts indicated that TSMC expects revenue to fall around 10% for the full year, which was worse than expected. However, TSMC reiterated an extended outlook for 15% to 20% annual growth and gross margins of over 53%.
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“Despite the weaker near-term outlook (which we view as macro-focused rather than TSMC-specific), we remain positive on the stock,” Bryson wrote in a research note on Thursday.
Wedbush reiterated an outperform rating on TSMC and raised its price target for its shares in Taiwan at 650 Taiwan dollars compared to 600 Taiwan dollars previously. Taiwanese shares of TSMC closed down 0.3% at 579 Taiwan dollars on Thursday.
Write to Adam Clark at adam.clark@barrons.com
