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TSMC’s Q1 Guidance Anticipates Its Steepest Revenue Fall in Years

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Jan. 17 2019, Published 12:02 p.m. ET

TSMC’s unexpected earnings guidance

The semiconductor earnings season began with an unpleasant surprise. On January 17, TSMC (TSM), the world’s largest foundry and the sole manufacturer of Apple’s (AAPL) A-series processors, reported its results for the fourth quarter of 2018 and provided weaker-than-expected guidance for the first quarter of 2019, signaling the start of a slowdown in the semiconductor industry.

TSMC’s fourth-quarter revenue and earnings figures met analysts’ expectations. However, it expects its revenue to fall 13% YoY (year-over-year) and 22% sequentially to $7.35 billion at the midpoint in the first quarter of 2019. This guidance suggests the company’s steepest revenue fall since March 2009, as reported by Reuters citing data from Refinitiv.

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On TSMC’s fourth-quarter earnings call, its chair, Mark Liu, stated that there had been a sudden decline in demand for high-end smartphones, leaving its channel with a lot of unsold inventory. The company expects smartphone demand to remain weak until the second half of 2019, when new models will consume its excess inventory.

TSMC’s revenue guidance sparks concerns about Apple’s suppliers

Generally, TSMC’s first-quarter revenue falls in the high single digits sequentially as holiday season sales fade. In an article on January 15, we said that we expect TSMC to report a higher-than-seasonal fall in the mid-teens in the first quarter of 2019, as Apple and Samsung (SSNLF) have lowered their revenue guidances for the quarter.

However, the magnitude of the sequential revenue fall of over 20% TSMC expects for the first quarter comes as a surprise and raises concerns about other Apple suppliers—especially Qorvo (QRVO) and Cirrus Logic (CRUS), which depend heavily on iPhones for revenues.

TSMC’s guidance also raises concerns about the earnings of chip suppliers with high exposure to the smartphone market, such as Broadcom (AVGO) and Qualcomm (QCOM).

TSMC’s guidance to negatively affect semiconductor stocks

The January 17 trading session will likely see significant falls in the stocks of Apple’s suppliers TSMC, Qorvo, Cirrus Logic, Broadcom, and Texas Instruments. The stocks of TSMC’s customers NVIDIA (NVDA), Huawei, and Qualcomm could also fall.

Semiconductor manufacturing equipment supplier Applied Materials (AMAT) is also likely to fall, as one of its largest customers is TSMC, and TSMC has reduced its 2019 capex guidance from $11 billion to the range of $10 billion–$11 billion.

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