Reuters: Taiwan Even as it reported its sharpest quarterly profit decline in more than seven years, Taiwan’s TSMC struck an optimistic tone about the outlook for the slumping global chip market, betting that a rollout of faster 5G mobile networks would boost demand.
Reuters: Taiwan Even as it reported its sharpest quarterly profit decline in more than seven years, Taiwan’s TSMC struck an optimistic tone about the outlook for the slumping global chip market, betting that a rollout of faster 5G mobile networks would boost demand.
The largest contract chipmaker in the world, TSMC, claimed that a recent agreement reached by two of its principal customers, Apple and Qualcomm, to resolve their two-year legal dispute over smartphone chips, will benefit the Taiwanese business.
“The settlement will bring forward 5G adoption; this will definitely benefit TSMC,” Elizabeth Sun, a senior director at TSMC told reporters on Thursday.
The optimistic outlook echoes that of its supplier ASML, which on Wednesday reported a better-than-anticipated quarterly profit and stated that it anticipates growth to pick up due to demand from Chinese chipmakers.
“While the economic factor and mobile product seasonality are still lingering as we move into second quarter, we believe we may have passed the bottom of the cycle of our business as we are seeing demand stabilizing,” TSMC CFO Lora Ho said.
TSMC’S Clients
With clients like iPhone manufacturer Apple, Qualcomm, and Huawei Technologies, TSMC serves as a proxy for the state of the technology market. For the three months ending in March, its net profit fell by 32% to T$61.4 billion (£1.5 billion).
It also fell short of the T$64.3 billion average of the 21 analyst estimates compiled by Refinitiv, marking the sharpest decline since the third quarter of 2011.
Taiwan’s supply chain manufacturers have suffered due to the slowing global demand for smartphones and worries about the ongoing U.S.-China trade war.
SMC, formerly known as Taiwan Semiconductor Manufacturing Co Ltd, projected revenue of between $7.55 billion and $7.65 billion in the second quarter. This would represent a 2.5–3.8 percent decline from the previous year, which is better than the first quarter’s sharp 16 percent decline.
According to TSMC, a faulty chemical that disrupted a portion of its production in February reduced first-quarter revenue.
In addition, the company predicted operating margins of 31 to 33 percent and gross margins of 43 to 45 percent for the second quarter, respectively, down from 47.8 percent and 36.2 percent a year earlier.
The prediction comes as investors worry about a global tech slowdown following recent warnings from rivals like Samsung Electronics Co Ltd about weak demand.
According to analysts, TSMC will gradually recover from weak smartphone sales in the upcoming months, and new demand, such as for devices with 5G communications technology, could help keep full-year revenue at least roughly flat
“Fortunately 5G should put TSMC back to growth and help it deliver double-digit earnings per share expansion in 2020 and 2021,” Mark Li, an analyst at Sanford C. Bernstein, wrote in a research note prior to the earnings announcement.
Analysts also claimed that TSMC might profit from Chinese customers stockpiling semiconductor products in the event that the U.S.-China trade negotiations go poorly.
Shares of TSMC closed up 1.15 percent prior to the earnings report, while the overall market fell 0.6 percent. The stock has increased by about 18% so far this year.
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