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World's top chipmaker TSMC's Q1 profit dives

Earnings down 31% to NT$61 billion amid fears of impact from slowing electronics demand

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Analysts say TSMC would slowly recover from sluggish smartphone sales and new demand including for devices with 5G technology could help keep full-year revenue at least broadly flat.

Taipei

TSMC, the world's largest contract chipmaker, posted on Thursday its steepest profit decline in over seven years in the first quarter of the year, amid fears about the impact that slowing electronics demand could have on its business.

TSMC, formally Taiwan Semiconductor Manufacturing Co Ltd, posted net profit of NT$61.4 billion (S$2.7 billion) for January-March, 31.6 per cent less than a year earlier, and the steepest fall since the third quarter of 2011.

The result also lagged the NT$64.3 billion average of 21 analyst estimates compiled by Refinitiv.

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The company, a proxy for global technology demand as its clients include iPhone maker Apple Inc, Qualcomm Inc and Huawei Technologies Co Ltd, forecast second-quarter revenue of US$7.55 billion to US$7.65 billion. That would be 2.5 per cent to 3.8 per cent lower than the year earlier.

It also forecast gross margin for the second quarter of 43 per cent to 45 per cent, while operating margin will be 31 per cent to 33 per cent, compared with 47.8 percent and 36.2 per cent a year earlier, respectively.

The forecast comes as investors fret about a global tech slowdown after chip suppliers including Samsung Electronics Co Ltd recently flagged weak demand.

Slowing global demand for smartphones, as well as concerns over the prolonged US-China trade war, has also taken a toll on Taiwan's supply chain manufacturers.

Analysts said TSMC would gradually recover from sluggish smartphone sales in coming months and new demand including for devices equipped with fifth-generation (5G) communications technology could help keep full-year revenue at least broadly flat.

"Fortunately 5G should put TSMC back to growth and help it deliver double-digit earnings per share expansion in 2020 and 2021," Mark Li, an analyst at Sanford C Bernstein, wrote in a research note prior to the earnings announcement.

Analysts said TSMC could also benefit from Chinese clients stocking up on semiconductor products in case of any adverse outcome from the US-China trade negotiations.

Revenue in US dollar terms fell 16.1 per cent to US$7.1 billion in the first quarter, versus the company's previously estimated range of US$7.0 billion to US$7.1 billion, and compared with the US$7.15 billion average of 22 analyst estimates.

Prior to the earnings announcement, shares in TSMC closed up 1.15 percent versus a 0.6 per cent fall in the wider market. The stock has risen around 18 per cent so far this year. REUTERS