TSMC, a major Apple supplier, forecast a 16 per cent plunge in sales for the second quarter as consumers grapple with an inventory glut while a weakening global economy clouds demand outlook.

The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC), said industry inventory levels were currently higher than expected and would only “rebalance to a more healthy level” in the third quarter.

“Moving into second quarter 2023, we expect our business to continue to be impacted by customers’ further inventory adjustment,” chief financial officer Wendell Huang said on Thursday (Apr 20) after TSMC reported the smallest growth in quarterly earnings in almost four years.

TSMC is, however, investing for long-term demand despite current softness in the market, CEO CC Wei said.

The chipmaker expects its business to hit a bottom in the second quarter and pick up after that, corresponding with the improved outlooks projected by iPhone maker Apple, Nvidia and Advanced Micro Devices, some of TSMC’s biggest customers.

For 2023, TSMC expects growth in the global semiconductor market, excluding memory, to decline in the mid-single digit percentage range, year on year. It sees the foundry market business declining in the high-single digit percentage range.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

TSMC said its business will outperform both markets.

The company’s dominance in making some of the most advanced chips for high-end customers such as Apple has shielded it from a broader industry downturn.

For the first quarter ended March, the company posted a surprise rise in net profit, up 2 per cent from a year earlier. But that was still the smallest quarterly growth since mid-2019 as global economic woes dented demand for chips, Refinitiv data shows.

Its net profit came in at T$206.9 billion (S$9.1 billion), versus T$202.7 billion a year earlier, while the consensus estimate was for a drop to T$192.8 billion.

Revenue fell 4.8 per cent, in line with its forecast.

High-performance computing chips and smartphone chips represented 44 per cent and 34 per cent of revenue, respectively.

China accounted for 15 per cent of TSMC’s first-quarter net revenue, versus 12 per cent in the previous quarter, while North America’s share of the pie fell to 63 per cent from 69 per cent.

Regarding the US Chips Act, designed to boost US chip manufacturing, CFO Huang said TSMC was in the process of applying for subsidies so it could not provide details.

The law requires firms that take US funds to agree not to undertake big expansions of chip manufacturing facilities in “countries of concern” such as China for 10 years.

TSMC also said on Thursday its new plant in Taiwan’s southern city of Kaohsiung would focus on more advanced chips than the previously announced 28 nanometre technology.

CEO Wei said TSMC was evaluating the possibility of building a speciality fabrication plant in Europe for auto chips.

TSMC’s share price fell 27.1 per cent in 2022, but is up around 14 per cent this year. REUTERS