Taiwan Semiconductor Manufacturing Co (TSMC) has forecast quarterly revenue sharply below projections, underscoring the deepening slowdown in both iPhone sales and the global economy.
Apple’s main chip maker foresees revenue of US$7.3-billion to $7.4-billion this quarter, trailing the $8.1-billion average of analysts’ estimates. That marks the worst growth in at least a decade. It predicted a gross margin at least 2.5 percentage points below projections.
TSMC is showing the strains of the plateauing smartphone market as Apple, its biggest customer, slashed its sales outlook and other vendors grapple with weaker demand ahead of new 5G wireless networks. While the Hsinchu, Taiwan-based company is counting on high-performance computing to drive future growth, it’s grappling with a slide in cryptocurrency chips and challenges surrounding another client, Huawei Technologies.
“There are few bright spots this year and 5G smartphones will only become more common next year,” said Mark Li, an analyst at Sanford C Bernstein. “High-performance computing will not be able to offset the smartphone slowdown.”
By dint of its enormous size and reach, TSMC is seen as a bellwether for the semiconductor industry. It trimmed the top of its forecast for capital spending by $1-billion and has now earmarked $10-billion to $11-billion, about level with last year.
“I have just guided gross margin to decline by 3.7 percentage points,” chief financial officer Lora Ho told an earnings briefing. “This is primarily attributed to lower utilisation due to overall weakening macroeconomic environment and mobile product seasonality and high level of inventory in the supply chain.”
TSMC reported net income of NT$100-billion ($3.2-billion) in the three months ended December, just marginally higher than a year earlier. That compares to the NT$99.1-billion average of estimates compiled by Bloomberg. But gross margin of 47.7% trailed projections for 48.2%. It previously reported a 4.4% rise in fourth-quarter revenue to NT$289.8-billion.
Huawei, the Chinese smartphone and network gear maker, is TSMC’s second largest customer. The Shenzhen-based company faces accusations of breaching US sanctions on Iran, allegations of spying and efforts by some Western countries to block it from 5G networks. The company has denied those accusations.
TSMC’s fortunes matter to global investors: it features on about 13% of the world’s active equity portfolios, according to the latest eVestment data. That makes it the most widely held stock in Asia and behind only Alibaba Group as the second most-owned emerging market company, the data shows. Shares in the Taiwanese company closed at NT$220.50 on Thursday, down 2.2% since the beginning of the year. — Reported by Debby Wu, (c) 2019 Bloomberg LP