TSMC’s First-Quarter Earnings Suggest Growth in Coming Quarters


Nov. 20 2020, Updated 3:40 p.m. ET

TSMC’s first-quarter earnings bottom out

TSMC (TSM) is the world’s largest semiconductor contract manufacturer. It serves a host of chip designers including Apple (AAPL), NVIDIA (NVDA), Qualcomm (QCOM), and Huawei Technologies. The foundry overtook Intel in manufacturing process technology with the launch of the 7-nm (nanometer) node in 2018. This technology advantage has helped the foundry attract new customers like Advanced Micro Devices (AMD).

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As TSMC has broad exposure to most end markets, its earnings are used to determine the health of the overall semiconductor industry. The foundry’s first-quarter earnings bottomed out as it reported its steepest sequential decline in profit in seven years.

At the first-quarter earnings call, TSMC’s CEO C.C. Wei stated that the company’s earnings were impacted by three factors:

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  • weak economic demand
  • an increase in inventory levels at chip suppliers as the inventory they stocked for the holiday season was not used completely due to weak end demand
  • a seasonal decline in high-end smartphone demand, especially iPhones. TSMC is the sole supplier of A-series processors used in Apple’s iPhones

How will the rest of the year be for TSMC?

TSMC reported better-than-expected second quarter guidance, as it projects the inventory situation of some customers will stabilize, whereas economic and smartphone demand weakness continues. C.C. Wei expects chip customers’ inventory to reduce significantly by mid-year and seasonal demand to pick up in the second half driven by new smartphone launches, initial 5G (fifth generation) deployments, and increasing demand for HPC (high-performance computing) applications.

The above guidance comes as Apple and Huawei launch their new high-end smartphones and AMD launches its EPYC 2 server CPU (central processing unit) in the second half. All these chips will be built on TSMC’s 7-nm and 7-nm+ process. Moreover, TSMC will also benefit from the recent licensing dispute settlement between its two customers Qualcomm and Apple. The foundry will secure orders for modem chips and A-series processors for 2019 iPhones. The settlement news sent the foundry’s stock up 5.6% in two days.

TSMC’s guidance sent stocks of Qualcomm, AMD, and NVIDIA up 2.6%, 1.8%, and 1.1% on April 22, the trading day after TSMC’s earnings release.

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