TSMC profit beats forecasts after chip demand fares better than feared

TAIPEI - Taiwan Semiconductor Manufacturing Co’s (TSMC) profit beat expectations after its chip margins held up better than anticipated, assuaging concerns about fallout from a plunge in global electronics demand.

It posted net income of NT$206.9 billion (S$9 billion) for the January to March quarter, compared with the NT$194.2 billion that analysts had projected on average. TSMC, maker of the most advanced chips for global electronics leaders from Apple to Nvidia Corp, previously reported disappointing revenue for the three-month period.

Taiwan’s largest company is grappling with persistently weak electronics demand, as consumers and corporations tighten their budgets to deal with soaring inflation and a potential global recession. PC shipments crashed by 29 per cent in the first quarter, led by Apple’s Mac line-up, according to the latest IDC figures.

TSMC had already slashed its capital spending plans for 2023 to a range of US$32 billion to US$36 billion (S$42.7 billion to S$48 billion), down from US$36.3 billion in 2022. Executives said in January that they expected revenue to decline by a mid-to-high single-digit percentage in the first half, though business should pick up thereafter as the Chinese economy and consumer spending stabilise.

TSMC’s market leadership likely buoyed its margins. On Wednesday, fellow industry bellwether ASML Holding – the largest producer of equipment essential to advanced chipmaking – forecast better-than-anticipated April to June quarter revenue. But net bookings, a barometer of future growth, plunged 46 per cent from a year earlier. Lam Research Corp, another equipment supplier to TSMC, also forecast adjusted earnings per share that missed the average analyst estimate.

TSMC executives were expected to deliver their outlook for this quarter and 2023 during their earnings conference call later on Thursday. Some analysts fear that the company may lower its outlook or capital spending plans, which would suggest a longer-lasting industry slump.

Over the longer term, investors are hopeful that TSMC’s leading technology can galvanise growth, particularly as a surge in artificial intelligence development and applications drives demand for the high-end computing chips and data centres required for training and hosting AI models.

The outlook, however, remains clouded by geopolitical uncertainty, including global efforts to encroach upon TSMC’s turf in advanced chipmaking and China’s growing military threats against Taiwan. Billionaire investor Warren Buffett said in a recent interview that he had divested the majority of Berkshire Hathaway’s US$4.1 billion stake in TSMC partly due to geopolitical concerns.

TSMC is under pressure to produce its advanced chips abroad and is building more capacity in the United States and Japan. Global policymakers and customers are increasingly wary of their technological reliance on Taiwan, which Beijing has claimed is part of China. BLOOMBERG