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Apple’s Weak iPhone Sales Could Show in TSMC’s Q4 2018 Earnings

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TSMC’s earnings are important for the semiconductor industry

The Q4 2018 semiconductor earnings season will begin with the release of TSMC’s (TSM) fourth-quarter 2018 earnings on January 17. TSMC is the world’s largest foundry and the sole supplier of A-series processors for Apple’s (AAPL) iPhones. Thus, its earnings are used to estimate Apple’s iPhone sales. The foundry also influences stocks of its other customers NVIDIA (NVDA) and Qualcomm (QCOM). Advanced Micro Devices (AMD) is the latest addition to TSMC’s customer list and the latter’s earnings will likely influence AMD’s stock in 2019. So what should investors expect from TSMC’s upcoming earnings?

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TSMC’s fourth-quarter revenue

TSMC reports monthly sales. According to these sales figures, its revenue rose 10.7% sequentially and 2.1% YoY to a record $9.4 billion in the fourth quarter of 2018, in line with its guided range of $9.35 billion to $9.45 billion. In the third-quarter earnings, the company stated that it expects to earn 20% of this revenue from its 7-nm (nanometer) node with Apple slated to account for ~75% of the 7-nm capacity, Huawei’s subsidiary HiSilicon for ~10% of the capacity, and AMD and others for the remaining capacity.

However, on January 2, Apple CEO Tim Cook lowered its December 2018 quarter’s revenue guidance from $91 billion at the midpoint to $84 billion, down 5% YoY on the back of weak iPhone sales. NVIDIA also halted shipments of its mid-range GPU (graphics processing unit) on the back of excess GPU inventory in the channel. A reduction in orders from Apple and NVIDIA will be slightly offset by strong orders from AMD and Qualcomm. TSMC’s earnings will shed some light on how the December quarter was for its above customers.

First-quarter revenue guidance

While the foundry may report strong fourth-quarter earnings, investors should be prepared for more than a seasonal decline in the first-quarter guidance, as strong orders from AMD and Qualcomm might not be able to completely offset weakness in smartphone sales. Generally, TSMC’s first-quarter revenue falls by high-single-digits sequentially but the first quarter of 2019 could see a low-to-mid-teens sequential decline in revenue.

We’ll look at the upcoming earnings of another Apple supplier Texas Instruments next.

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