TSMC profits fall but the iPhone 15 will help it rebound
Andrew OrrTSMC profits are expected to decline year-over-year
Apple supplier TSMC is expected to report a drop in profits soon, but business will recover in the third quarter because the company is producing the iPhone 15.
On Thursday, Taiwan Semiconductor Manufacturing Company (TSMC), a chip manufacturer based in Taiwan, is projected to reveal a 27% decrease in net profit for the second quarter of 2023. The decline is due to global economic challenges, which have affected the demand for semiconductors.
Analysts are predicting that TSMC's net profit for the period spanning April to June will amount to $5.58 billion, a decrease compared to the $7.64 billion recorded in the year-ago quarter of 2022, according to Reuters. The decline is not necessarily poor performance — instead, it can be attributed to the surge in chip demand following the Covid-19 pandemic with the demand returning to pre-pandemic levels.
Analysts from Taiwan's Fubon Investment anticipate that the second quarter will mark the low point of the current downward trend. However, they also mentioned that although the situation is expected to improve in the third quarter, it will still be weaker than usual due to ongoing efforts to address accumulated inventory.
A senior Taiwan fund manager believes that profits in the third quarter will bounce back because of the rise in artificial intelligence projects and the iPhone 15 lineup that Apple will launch later in 2023.
"Taiwan has not really benefited from electric vehicles, since the market is in China and most EV suppliers are in China. But artificial intelligence (AI) is a different story," he said. "Taiwan will benefit most from AI because the entire AI supply chain can be found here."
Typically, the second quarter is a relatively sluggish period for sales in the technology industry, as demand tends to accelerate during the third quarter and towards the end of the year, coinciding with the holiday shopping season.
The positive prospects for AI applications have contributed to the significant rise in TSMC's stock listed on the Taipei exchange, experiencing an increase of nearly 30% since the beginning of 2023. This performance has outpaced the overall market, which has grown approximately 22%.
TSMC is scheduled to disclose guidance for the third quarter and revise its previous earnings forecasts during the earnings call, which will take place at 0600 GMT on Thursday.
Mike Wuerthele
Malcolm Owen
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2 Comments
So, demand is reverting to baseline because of economic conditions but accumulated inventory is a problem? That makes it sound like TSMC's management has really bad forecasting skills and the problems with actually delivering products to customers remain unresolved.
I find that combination less likely than the possibility that Fubon Investment's analysts are talking out of their hats.
Demand for the output from the 3nm process is off the charts, so the reduction in demand is for the older process nodes which... sounds obvious? It's conceivable that excess inventory from those older nodes built up while "the supply chain" was unable to ship things in a timely fashion, but management at TSMC would have accounted for this and picked an appropriate time to re-tool or re-purpose the older nodes - it's surely all hands on deck to increase production on the latest nodes. The only way this inventory is not going to result in delayed profits is if customers cancel their orders, which also seems unlikely in the majority of cases.
I guess we'll find out more details after the earnings call.