TSMC books steepest quarterly profit fall in a period of seven years

TAIPEI (Reuters) – TSMC, the world’s largest contract chipmaker, posted on Thursday, the steepest profit decline in more than seven years in the first quarter of the year, amid fears about the impact of slowing electronics demand could have on its activities.

FILE PHOTO: A logo of Taiwan Semiconductor Manufacturing Co (TSMC) is seen at the company headquarters in Hsinchu, Taiwan-August 31, 2018. REUTERS/Tyrone Siu

TSMC, formal Taiwan Semiconductor Manufacturing Co Ltd, posted a net profit of T$61.4 billion ($1.99 billion) for January-March, 31.6 percent less than a year earlier, the biggest decline since the third quarter of 2011.

The result also kept the T$64.3 billion average of 21 analyst estimates compiled by Refinitiv.

The company, a proxy for global technology demand as its customers are, among others, the iPhone-maker Apple Inc, Qualcomm Inc and Huawei Technologies Co Ltd, forecast second-quarter revenue of $7.55 billion to $7.65 billion. That would be 2.5 percent to 3.8 percent lower than the year before.

Also forecast gross profit margin for the second quarter of 43 percent to 45 percent, while the operating margin will be 31 percent to 33 percent, compared with 47.8 percent and 36.2 percent a year earlier, respectively.

The forecast comes as investors are complaining about global tech delay after chip suppliers, including Samsung Electronics Co Ltd recently highlighted weak demand.

The slowing of the global demand for smartphones, as well as concerns about the long-term U.S.-China trade war has also taken a toll on Taiwan’s supply chain manufacturers.

Analysts said that TSMC would gradually recover from sluggish smartphone sales in the coming months a new demand for devices that are equipped with a fifth-generation (5G) communication technology can help to achieve the full year revenue is at least largely the same.

“Fortunately, 5G must 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 said that TSMC could also benefit from the Chinese customers stocking up on semiconductor products in the event of a negative outcome of the U.S.-China trade negotiations.

The sales in U.S. dollar fell 16.1 percent to $7.1 billion in the first quarter, compared to the company’s previously estimated range of $7.0 billion to $7.1 billion, compared with $7.15 billion average of 22 analyst estimates.

Prior to the earnings announcement, the shares of TSMC closed up 1.15 percent compared to a 0.6 percent fall in the broader market. The stock has risen about 18 percent this year.

Reporting by Yimou Lee and Roger Tung; Editing by Christopher Cushing

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