TSMC Q3 2023 Earnings Report

Taiwan Semiconductor Manufacturing Company reported third-quarter profit of 211 billion new Taiwan dollars ($6.69 billion) on Thursday as demand for consumer electronics remains weak.

Even though it was the biggest profit decline since the first quarter of 2019, the world’s largest contract chip maker exceeded analysts’ expectations.

Here are TSMC’s third-quarter results compared to Refinitiv’s consensus estimates:

• Revenue: 546.73 billion new Taiwan dollars (US$17.28 billion), versus expected NT$540.39 billion
• Net income: NT$211 billion, versus expected NT$191.43 billion

TSMC reported that revenue fell 10.83% year-on-year to NT$546.73 billion, while net profit fell 24.87% year-on-year to NT$211 billion. This compares to TSMC’s forecast for third-quarter revenue of between $16.7 billion and $17.5 billion.

“Our business was supported by strong growth in our industry-leading 3-nanometer technology and higher demand for 5-nanometer technologies, partially offset by ongoing customer inventory adjustments,” TSMC said in its earnings report.

The chip giant said third-quarter revenue rose 13.7% compared to the second quarter.

In the second quarter, the Taiwanese company reported a decline in quarterly profit for the first time in four years as demand for consumer electronics such as smartphones and laptops collapsed following the pandemic. But analysts say chip inventories are running low at smartphone and PC makers and they expect demand to refill.

During the earnings call on Thursday afternoon, CEO CC Wei said the company expects inventory to continue to decline.

“Due to the ongoing weaker overall macroeconomic situation and the slow recovery of demand in China, customers remain cautious about inventory control. Therefore, we expect inventory depletion to continue in the fourth quarter,” Wei said.

“Nevertheless, we are seeing initial signs of demand stabilization in the PC and smartphone markets,” he added.

TSMC is the leading manufacturer of the world’s most advanced processors. The Taiwanese company produces semiconductors for companies such as Apple And Nvidiawhich are often based on the Arm architecture.

TSMC currently produces 3-nanometer chips and plans to begin 2-nanometer mass production in 2025.

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Canalys data showed that the global smartphone market only decreased by 1% in the third quarter of 2023, suggesting a slowdown in its decline. The market is in the second quarter fell by 11% compared to the same period last year.

“Supported by regional recoveries and demand for new product upgrades, the smartphone market posted double-digit sequential growth in the third quarter ahead of sales seasons,” Canalys said in a report on Tuesday.

Demand for AI chips is booming, driven by the proliferation of large language models such as ChatGPT and Chinese clones. That has boosted shares of TSMC, which have risen 19% so far this year.

However, CEO Wei said that AI demand is “not enough to offset weak demand for chips in consumer electronics.”

“As we enter the fourth quarter of 2023, AI-related demand remains strong, but it is not sufficient to offset the overall cyclicality of our business,” Wei said during Thursday’s earnings call.

“We expect our business to be supported by continued strong growth in the fourth quarter [up] our 3-nanometer technology, partially offset by continued customer inventory adjustment on the warehouse side,” he said.

TSMC expects fourth-quarter revenue to be between $18.8 billion and $19.6 billion.

Last week, the US extended TSMC’s exemption from US trade sanctions against China, allowing the company to continue supplying advanced chip equipment for its operations there.