TSMC expects 27% fall in Q2 earnings, Q3 looks better

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest contract chipmaker and a major Apple and Nvidia supplier, is likely to report net profit for the April-June period of T$172.53 billion ($5.58 billion), down from T$237.0 billion a year earlier, according to the average of 21 analysts polled by Reuters.

The forecast decline in profit partly reflects a robust performance in the previous year, when the company was still riding high on pent-up post-pandemic demand.

Analysts at Taiwan’s Fubon Investment said they expected the second quarter to be the bottom of the current downcycle but that while the situation should improve in the third quarter, it would be weaker than normal given continued inventory build ups that are still being worked through.

One senior Taiwan fund manger told Reuters that third quarter profit would bounce back given expectations for AI demand and launches of new iPhones ahead of the year-end holiday shopping season.

“Taiwan has not really benefited from electric vehicles, since the market is in China and most EV suppliers are in China. But artificial intelligence (AI) is a different story,” he said, requesting anonymity citing company policy. “Taiwan will benefit most from AI because the entire AI supply chain can be found here.”

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The second quarter is traditionally a slow period for sales for the tech industry with demand usually picking up in the third quarter and towards the year-end shopping season. TSMC, Asia’s most valuable listed company, posted a surprise rise in net profit for the quarter ended March, up 2% from a year earlier. But that was still the smallest quarterly growth since mid-2019 as global economic woes hurt demand for chips.

Last month, the company said quickly rising demand for AI applications was driving a lot of orders and that it expected a better performance in the second half than the first.

The bright outlook for AI applications has in part driven up TSMC’s Taipei-listed stock by almost 30% so far this year, outperforming the broader market, which is up around 22%.

The company will provide guidance for the third quarter and update previous forecasts on its earnings call at 0600 GMT on Thursday.

TSMC’s second quarter revenue came in at T$480.8 billion($15.53 billion), according to Reuters calculations, in the middle of an April forecast range of $15.2 billion to $16 billion, compared to $18.16 billion for the year-ago period.