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TSMC merry on chip outlook after Apple-Qualcomm settlement; first quarter disappoints

TAIPEI (Reuters) – taiwan’s TSMC in collision with an upbeat note about the prospects for the depressed global chip market, betting that a roll-out of faster 5G mobile network would buoy demand, even as it posted its steepest quarterly profit fall in more than seven years.

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, the world’s largest contract chipmaker, said a recent agreement between the largest customers of Apple and Qualcomm at the end of their two-year legal dispute over smartphone chips will help the Taiwanese company.

“The settlement will 5G adoption; this will surely benefit TSMC,” Elizabeth Sun, senior director at TSMC, told reporters on Thursday.

The upbeat forecast echoes that of its supplier, ASML reported better-than-expected quarterly profit on Wednesday and said it expects the growth to accelerate, thanks to the demand from the Chinese chipmakers.

“Although the economic factor and mobile seasonal product are still lingering as we enter the second quarter, we believe that we have passed the bottom of the cycle we see the demand to stabilise,” TSMC CFO Lora Ho said.

TSMC, a proxy for the technology of the question as its customers are, among others, the iPhone-maker Apple, Qualcomm and Huawei Technologies, posted a 32 percent drop in net profit of T$61.4 billion ($2 billion) for January-March.

That marked the steepest decline since the third quarter of 2011 and also kept the T$64.3 billion average of 21 analyst estimates compiled by Refinitiv.

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

TSMC, formal Taiwan Semiconductor Manufacturing Co Ltd, forecast second-quarter revenue of $7.55 billion to $7.65 billion. That would be 2.5 to 3.8 percent lower than a year ago, but better than a steep 16 percent decline in the first quarter.

A defective chemical that disrupted part of its production in February weighed on the first quarter sales, TSMC added.

The company also forecast gross margin of 43 percent to 45 percent in the second quarter, and an operating margin of 31-33 percent, compared with 47.8 percent and 36.2 percent a year earlier, respectively.

The forecast comes as investors are complaining about a global tech slowdown after rivals, including Samsung Electronics Co Ltd recently highlighted weak demand.

Analysts said that TSMC would gradually recover from sluggish smartphone sales in the coming months a new question also for devices equipped with 5G communication technology could 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 also said TSMC would be able to benefit from the Chinese customers stocking up on semiconductor products in the event of a negative outcome of the U.S.-China trade negotiations.

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.

($1 = 30.8580 Taiwan dollars)

Reporting by Yimou Lee and Roger Tung; Writing by Clare Jim; Editing by Christopher Cushing, Miyoung Kim and Himani sarkar

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