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TSMC earnings report Q3 2023

by Mark Mendoza

Taiwan Semiconductor Manufacturing Company (TSMC) reported a third-quarter profit of 211 billion New Taiwan dollars ($6.69 billion) on Thursday, marking its second straight quarter of profit decline. The weak demand for consumer electronics continues to impact the company’s performance, but TSMC still managed to beat analyst expectations.

TSMC is the world’s largest contract chipmaker and is known for producing the most advanced processors. However, the post-pandemic plunge in consumer electronics demand has affected its business. The company’s revenue slipped 10.83% from a year ago to NT$546.73 billion, while net income fell 24.87% to NT$211 billion.

Despite the decline, TSMC’s results were better than expected. The company surpassed Refinitiv consensus estimates for both revenue and net income. TSMC’s revenue of NT$546.73 billion exceeded the estimated NT$540.39 billion, and its net income of NT$211 billion was higher than the expected NT$191.43 billion.

TSMC attributed its performance to the strong ramp-up of its 3-nanometer technology and increased demand for 5-nanometer technologies. However, this positive momentum was partially offset by customers’ ongoing inventory adjustment.

During the earnings call, TSMC CEO C.C. Wei expressed cautious optimism about the company’s inventory situation. Wei stated that he expects inventories to continue to decline in the fourth quarter due to weak overall macroeconomic conditions and slow demand recovery in China. TSMC’s customers remain cautious in their inventory control, which will contribute to ongoing inventory digestion.

TSMC manufactures semiconductors for major technology companies like Apple and Nvidia, which are often based on Arm architecture. The company is currently manufacturing 3-nanometer chips and plans to begin mass production of 2-nanometer chips in 2025.

The global smartphone market showed signs of a slowdown in its decline, with a 1% slide in the third quarter of 2023, according to Canalys data. This is an improvement from the second quarter when the market plummeted 11% compared to the same period a year ago. Canalys attributed this growth to regional recoveries and new product upgrade demand.

Although the demand for AI chips has surged due to the proliferation of large language models, TSMC’s CEO Wei stated that it is not enough to offset the weakening demand for chips in consumer electronics. AI-related demand remains strong, but the overall cyclicality of TSMC’s business is still a factor.

In positive news for the company, the U.S. recently extended TSMC’s exemption from trade sanctions on China. This allows the company to continue shipping advanced chip equipment for its operations in China.

Overall, TSMC’s third-quarter results reflect the ongoing challenges in the consumer electronics market. While the company faced profit declines for the second consecutive quarter, it managed to outperform analyst expectations. TSMC remains optimistic about the future, with hopes that the strong ramp-up of its advanced technologies will continue to support its business.

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