TSMC Q2 profit rises 11% on strong chip demand

Net income for the quarter ended in June rose to NT$134.4 billion (S$6.5 billion).
Net income for the quarter ended in June rose to NT$134.4 billion (S$6.5 billion).PHOTO: REUTERS

TAIPEI (BLOOMBERG) - Taiwan Semiconductor Manufacturing Co (TSMC) reported on Thursday (July 15) an 11 per cent increase in quarterly profit, underscoring how the company has benefited from a global chip shortage that has driven up orders from the automotive and other industries.

Net income for the quarter ended last month rose to NT$134.4 billion (S$6.5 billion), slightly below the average analyst estimate of NT$136.15 billion. Revenue came in at NT$372.15 billion based on previously released monthly sales figures.

While an ongoing semiconductor shortage has hampered the global economic recovery from Covid-19, suppliers like TSMC, the world's largest contract chipmaker, are among beneficiaries as they race to fulfil orders. The Taiwanese company is also likely to get a lift from plans by Apple, its largest customer, to ready 90 million units of upgraded iPhones for the second half of this year.

"As TSMC will likely keep loading its capacity at extremely high utilisation in upcoming quarters, we expect the strong revenue momentum to continue through end of 2021," Citigroup analyst Roland Shu wrote in a note last week. "Strong demand but limited capacity increases in the supply chain will continue to allow TSMC to best utilise its capacities and further strengthen its pricing power."

Early this month, Daimler and Jaguar Land Rover warned that sales will be further curtailed by the persistent chip shortage, with the latter saying deliveries in the second quarter will be 50 per cent worse than initially thought. The British economy's growth slowed to 0.8 per cent in May, partly due to a 16.4 per cent slump in the production of transport equipment triggered by a lack of semiconductors.

United Microelectronics Corp, a smaller rival to TSMC, said last week that chip demand could continue to outpace supply until 2023.

In response to the demand from carmakers, TSMC has said it will increase shipments to the sector. Revenue from automotive clients increased 12 per cent from the first quarter, while high-performance computing climbed by a similar magnitude. Sales to smartphone clients, the biggest chunk of its revenue, eased 3 per cent in the seasonally slower second quarter.

Gross margin was 50 per cent, below the roughly 51 per cent average predicted by analysts. Early last month, a cluster of Covid-19 infections at a factory in central Taiwan forced King Yuan Electronics, one of the world's leading chip-testing service providers, to shut operations temporarily. That led to minor disruptions in the Taiwanese semiconductor supply chain which many around the world rely on. TSMC said on Monday that three of its employees were confirmed to have been infected, though it does not see any impact on operations.