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TSMC Warns of Weak Demand in the First Half of 2019

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TSMC’s guidance reflects semiconductor industry slowdown

Previously, we saw that TSMC (TSM) has reported strong fourth-quarter earnings but has given weak first-quarter 2019 revenue guidance. The company stated that a decline is expected due to mobile market seasonality, a weak macroeconomic outlook, and high semiconductor supply chain inventory.

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Mobile market

TSMC is the sole manufacturer of Apple’s (AAPL) A-series processors, which are used in iPhones. In early January, Apple reduced its December 2018 quarter’s revenue guidance to $84 billion from $89 billion–$93 billion. The revised guidance represents a YoY (year-over-year) decline of 5% for the December quarter, which is usually its peak quarter due to the inclusion of sales of the latest iPhones. Apple blamed slow demand in China (FXI) for its lowered revenue guidance.

TSMC reported strong orders from smartphone customers in the December 2018 quarter, but a sudden decline in smartphone demand created excess inventory in the channel. The company expects smartphone demand to remain weak until the second half of 2019, when new models are set to be launched and excess inventory consumed.

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Weak macroeconomic outlook

TSMC acknowledged that macroeconomic environment weakness is affecting its earnings. Economic demand is slowing due to US-China trade uncertainty, and device makers are not stocking up inventory as they do not know if they will be able to sell it, resulting in a high semiconductor supply chain inventory.

High inventory

Memory chip makers Samsung and Micron reported excess memory inventory among data center customers, GPU maker NVIDIA (NVDA) reported excess inventory in the channel, and now handset makers are set to report a high component inventory. This inventory could take three to six months to clear, and which point TSMC and other semiconductor companies expect demand to pick up. The ramp-up of 5G (fifth-generation) technology and autonomous vehicles hitting the roads are also expected to boost demand in the second half of this year.

With strong fourth-quarter revenue, TSMC’s revenue rose 6.5% YoY to $34.2 billion last year. The foundry expects its revenue to grow 1%–3% this year. Next, we’ll look at TSMC’s revenue by technology node.

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