TMSC saw their quarterly profits plunge the highest since 2019. However, the company says that the the PC and smartphone market concerns are abating and chip demand is rising again.
On Thursday, October 19, the Taiwan Semiconductor Manufacturing Company (TSMC) reported its Q3 2023 numbers with profit standing at 211 billion New Taiwan dollars ($6.69 billion). This was greater than the expected profit of NT$191.43.
This has been the largest profit decline since the first quarter of 2019. TSMC’s revenue declined by 10.83% year-over-year, amounting to NT$546.73 billion, and its net income decreased by 24.87% year-over-year to NT$211 billion. These figures contrast with TSMC’s third-quarter revenue guidance, which projected revenue ranging from $16.7 billion to $17.5 billion. In its earnings report, TSMC noted:
“Our business was supported by the strong ramp of our industry-leading 3-nanometer technology and higher demand for 5-nanometer technologies, partially offset by customers’ ongoing inventory adjustment.”
The semiconductor company noted a 13.7% increase in third-quarter revenue compared to the second quarter. During the second quarter, the Taiwanese company experienced a decline in quarterly profit for the first time in four years, primarily due to reduced demand for consumer electronics like smartphones and laptops following the initial impact of the pandemic. Analysts anticipate a resurgence in demand as chip inventories at smartphone and PC manufacturers deplete.
During the earnings call earlier today, TSMC CEO C.C. Wei said that he expects the inventories to continue to decline. “Due to the persistent weaker overall macroeconomic conditions and slow demand recovery in China, customers remain cautious in their inventory control. That’s why we expect the inventory digestion to continue in the fourth quarter,” said Wei.
Smartphone Demand Stabilizing
The good news for TSMC and the broader semiconductor industry is that there are some early signs of demand stabilization in the smartphone and PC market. According to Canalys data, the global smartphone market only contracted by 1% in the third quarter of 2023, indicating a significant deceleration in its rate of decline.
In the previous quarter, the market saw an 11% decrease when compared to the same period in the previous year. In their report earlier this week, Canalys noted:
“Bolstered by regional recoveries and new product upgrade demand, the smartphone market recorded a double-digit sequential growth in Q3, ahead of the sales seasons.”
The demand for AI chips has experienced a surge due to the widespread adoption of large language models like ChatGPT and its Chinese counterparts, contributing to the robust performance of TSMC’s shares, which have gained 19% year-to-date. Nevertheless, CEO Wei noted that while AI demand is on the rise, it is “insufficient to fully compensate for” the declining demand for chips in consumer electronics.
“Moving into fourth quarter 2023, AI-related demand continues to be strong but it is not enough to offset the overall cyclicality of our business. We expect our business in the fourth quarter to be supported by the continued strong ramp [up] of our 3-nanometer technology, partially offset by customers’ continued inventory adjustment on the inventory side,” added he.
For the fourth quarter, TSMC has revenue expectations between $18.8 billion to $19.6 billion.