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Taiwan Semiconductor Manufacturing (TSM), the world’s largest contract chipmaker, beat analyst expectations for the second quarter on Thursday but disappointed with its outlook. TSM stock fell in early trading.
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Taiwan Semiconductor, better known as TSMC, earned $1.14 per U.S. share on sales of $15.68 billion in the June quarter. Analysts polled by FactSet had expected earnings of $1.07 a share on sales of $15.44 billion. However, TSMC earnings fell 25% year over year while sales dropped 12%. In local currency, earnings decreased 23% while sales declined 10%.
TSMC’s results marked its second straight quarter of declining sales and earnings as its customers navigate a downturn in chip demand.
For the current quarter, TSMC predicted revenue of $16.7 billion to $17.5 billion. The midpoint of $17.1 billion is below Wall Street’s target of $17.4 billion. In the year-earlier period, TSMC generated $19.2 billion in sales.
TSM Stock Falls After Report
Taiwan Semiconductor also cut its revenue forecast for the full year to a 10% decline from a mid-single-digit decline.
“This is the third cut to its revenue outlook that TSMC has made this cycle,” Needham analyst Charles Shi said in a note to clients. Shi had expected TSMC to reduce its 2023 sales outlook to a high-single-digit decline.
“TSMC’s second-quarter earnings call may go down as one of the more pessimistic calls in recent history,” Shi said.
In morning trades on the stock market today, TSM tumbled 3% to 99.98.
TSM stock is in a flat base with a buy point of 110.69, according to IBD MarketSmith charts.
“Our second-quarter business was impacted by the overall global economic conditions, which dampened the end-market demand, and led to customers’ ongoing inventory adjustment,” Chief Financial Officer Wendell Huang said in a news release.
He added, “Moving into third quarter 2023, we expect our business to be supported by the strong ramp of our 3-nanomenter technologies, partially offset by customers’ continued inventory adjustment.”
Circuit widths on chips are measured in nanometers, which are one-billionth of a meter.
Taiwan Semi On Tech Leaders List
Taiwan Semiconductor produces chips for fabless semiconductor firms such as AMD (AMD), Apple (AAPL), Broadcom (AVGO), Nvidia (NVDA) and Qualcomm (QCOM).
Cyclical headwinds overshadowed strength in AI chip production at TSMC, Needham’s Shi said.
“Management still sees Q3 as the end of an inventory correction but believes customers may not build inventory back as fast as previously expected,” Shi said.
Meanwhile, TSMC management expects chips for artificial intelligence to grow to a low-teens percent of sales by 2028 from 6% today.
TSM stock ranks sixth out of 30 stocks in IBD’s semiconductor manufacturing industry group, according to IBD Stock Checkup. Taiwan Semiconductor has an IBD Composite Rating of 92 out of 99. IBD’s Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock’s strengths. The best growth stocks have a Composite Rating of 90 or better.
Further, TSM stock is on the IBD Tech Leaders list.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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