- Taiwan Semiconductor Manufacturing Company (TSMC) reported a third-quarter profit that was down 25% to $6.69 billion ($6.05 billion was expected). This decline can be attributed to the persistent weak demand for consumer electronics, but the world’s largest contract chipmaker still managed to surpass analysts’ expectations.
- TSMC is the primary producer of the world’s most advanced processors, and the Taiwanese firm manufactures semiconductors for companies like Apple and Nvidia, often based on Arm architecture.
Revenue fell by 14.6% year-on-year to $17.28 billion, slightly higher than the $17.08 billion expected by analysts. Compared to the second quarter, revenue increased by 10.2% in the third quarter. The company anticipates that its revenue for Q4 2023 will range between $18.8 billion and $19.6 billion, based on assumptions related to a slightly stronger US Dollar. - TSMC maintained impressive margins with a gross margin of 54.3% for the quarter, an operating margin of 41.7%, and a net profit margin of 38.6%. The company expects continued margin pressure, projecting a gross profit margin between 51.5% and 53.5% in Q4 2023 and an operating profit margin ranging from 39.5% to 41.5%.
- The company has also benefited from the extension of TSMC’s exemption from US trade sanctions on China by the US government, allowing it to continue shipping advanced chip equipment for its operations there.
TSMC stated that persistent weaker overall macroeconomic conditions and a slow demand recovery in China have made its customers more cautious in managing their inventory. However, the company has observed some early signs of demand stabilization in the PC and smartphone market. - Data from Canalys indicates that the global smartphone market only saw a 1% year-on-year decline in Q3 2023, suggesting a slowdown in its decline when compared to the 11% year-on-year drop in Q2.
- The demand for AI chips has surged, driven by the proliferation of large language models such as ChatGPT, Bard, and other Chinese iterations. TSMC did however mention that the demand for AI chips is not sufficient to offset the weakening demand for chips in consumer electronics. Chip inventories at smartphone and PC manufacturers are depleting, which could lead to increased restocking demand. The AI frenzy has boosted TSMC’s shares, which have risen by 26% so far this year. Despite this, the company’s price-to-earnings (PE) ratio is 16x, making it inexpensive compared to its peers – and it still holds a near monopoly in the microchip fabrication business. The average one-year analyst price target for the stock is 24% higher than the current share price. We own the stock in global managed portfolios and the Cratos BCI worldwide equity fund.
By Lee Kern