. TSMC's Q2 Earnings Decline, But Q3 Outlook Shines

TSMC’s Q2 Earnings Decline, But Q3 Outlook Shines

TSMC’s Q2 Earnings Decline, But Q3 Outlook Shines

18 Jul 2023

TSMC Q2 Earnings Decline 27%, But Q3 Outlook Optimistic.

Introduction

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest contract chipmaker and a key supplier to tech giants Apple and Nvidia, is expected to report a 27% decline in net profit for the second quarter of this year. The weak demand for semiconductors, stemming from the global economic crisis, has adversely affected TSMC’s earnings. However, economists remain positive about the company’s business performance in the upcoming quarter.

TSMC’s Q2 Performance and Analyst Projections

Amidst the global economic crisis and reduced demand for semiconductors, TSMC is projected to achieve a net profit of T$172.53 billion ($5.58 billion) for the April-June period, according to a survey conducted with 21 analysts by Reuters. This represents a significant drop from the T$237.0 billion recorded during the same period the previous year.

The remarkable performance of TSMC in the prior year, driven by pent-up post-pandemic demand, is one of the contributing factors to the anticipated decline in earnings this quarter.

Outlook for Q3 Recovery

Analysts at Fubon Investment in Taiwan predict that the second quarter will likely mark the bottom of the current downturn. However, they also suggest that the recovery in the third quarter might be weaker than usual due to ongoing inventory buildups that are yet to be resolved.

Despite this prediction, a prominent Taiwanese fund manager expressed optimism regarding TSMC’s third-quarter profits. Considering the projected demand for artificial intelligence (AI) and the introduction of new iPhones ahead of the Christmas shopping season, the fund manager believes that TSMC’s earnings will rebound.

Taiwan’s Advantage in the AI Industry

While Taiwan has not fully benefited from the market for electric vehicles due to its concentration in China, the situation is different for artificial intelligence (AI). Taiwan’s strong position in the entire AI supply chain positions it to gain the most from advancements in AI technology. An anonymous source, citing business policy, emphasized the importance of Taiwan’s AI advantage.

Seasonal Trends in the Tech Sector

The tech sector often experiences a sluggish second quarter, with demand typically picking up in the third quarter, leading into the holiday shopping season. This trend applies to TSMC as well, which expects improved performance in the coming months.

Positive Implications for TSMC’s Stock

TSMC, the most valuable publicly traded firm in Asia, reported an unexpected 2% increase in net profit for the first quarter compared to the previous year. Despite the impact of the global economic crisis on chip demand, this gain was considered the weakest quarterly growth since mid-2019.

TSMC’s positive prognosis for AI applications has contributed to a notable surge in its Taipei-listed stock, which has risen approximately 30% year-to-date, surpassing the broader market’s gain of about 22%.

Guidance and Revisions for Q3

During the results call scheduled for Thursday at 6:00 GMT, TSMC will provide guidance for the third quarter and revise earlier projections. This announcement will shed light on the company’s expectations for the upcoming months.

TSMC’s Second Quarter Sales Figures

Based on calculations by Reuters, TSMC’s second-quarter sales amounted to T$480.8 billion ($15.53 billion), falling within the projected range of $15.2 billion to $16 billion announced in April. This figure reflects a decrease compared to the $18.16 billion recorded during the same period in the previous year.

Conclusion

While TSMC experienced a decline in earnings for the second quarter of this year due to weakened semiconductor demand caused by the global economic crisis, there is optimism regarding the company’s performance in the third quarter. TSMC’s position as a leading contract chipmaker, coupled with the projected demand for AI applications and the introduction of new iPhones, suggests a potential rebound in profits. Taiwan’s advantage in the AI industry further reinforces TSMC’s potential for growth and success in the coming months.

FAQ

1. Q: What is TSMC?

A: TSMC stands for Taiwan Semiconductor Manufacturing Company. It is the world’s largest contract chipmaker and plays a crucial role in the global semiconductor industry.

2. Q: Who are TSMC’s major customers?

A: TSMC supplies chips to various tech giants, with Apple (NASDAQ: AAPL) and Nvidia (NASDAQ: NVDA) being significant customers.

3. Q: Why did TSMC’s Q2 earnings decline?

A: TSMC’s Q2 earnings declined due to weak demand for semiconductors caused by the global economic crisis.

4. Q: Will TSMC’s business performance recover in Q3?

A: Economists predict a recovery in TSMC’s business performance in the upcoming quarter, driven by factors such as anticipated AI demand and the introduction of new iPhones.

5. Q: Why is Taiwan well-positioned in the AI industry?

A: Taiwan is home to the entire AI supply chain, giving it a competitive advantage in the AI industry and the potential for significant gains.