TSMC’s earnings report for the third quarter of 2023

Taiwan Semiconductor Manufacturing Co. reported third-quarter earnings of NT$211 billion (US$6.69 billion) on Thursday as demand for consumer electronics remained weak. While this was the second straight quarter of declining profits, the world’s largest chipmaker beat analysts’ expectations.

Here are TSMC’s third-quarter results versus Refinitiv consensus estimates:

• he won: NT$546.73 billion (US$17.28 billion), versus NT$540.39 billion expected
• net income: NT$211 billion, compared to NT$191.43 billion expected

TSMC reported that revenue fell 10.83% from a year ago to NT$546.73 billion, while net income fell 24.87% from a year ago to NT$211 billion. This compares to TSMC’s guidance for third-quarter revenue of between $16.7 billion and $17.5 billion.

“Our business was supported by strong progress of our industry-leading 3nm technology and rising demand for 5nm technologies, which was partially offset by ongoing customer inventory adjustments,” TSMC said in its earnings report.

The chip giant said revenue increased 13.7% in the third quarter compared to the second quarter.

In the second quarter, the Taiwanese company reported a decline in its quarterly profits for the first time in four years due to lower demand for consumer electronics such as smartphones and laptops after the pandemic. But analysts said chip inventories at smartphone and personal computer makers are declining, and they expect demand for restocking to return.

During an earnings call Thursday afternoon, CEO CC Wei said the company expects inventories to continue to decline.

“Due to overall continued weak macroeconomic conditions and slow demand recovery in China, customers remain cautious in monitoring their inventory. This is why we expect inventory digestion to continue in the fourth quarter,” Wei said.

“However, we are seeing some early signs of stabilizing demand in the PC and smartphone market,” he added.

TSMC is the largest producer of the most advanced processors in the world. The Taiwanese company makes semiconductors for companies like Apple and Nvidia, which are often based on the Arm architecture.

TSMC currently manufactures 3nm chips, and plans to begin mass production of 2nm chips in 2025.

Canalys data showed that the global smartphone market Only 1% decline In the third quarter of 2023, indicating a slowdown in its decline. In the second quarter, the market decreased 11% Compared with the same period last year.

“Supported by regional recovery and demand for new product upgrades, the smartphone market recorded double-digit sequential growth in the third quarter, ahead of the sales seasons,” Canalys said in a report issued on Tuesday.

Demand for AI chips has boomed thanks to the proliferation of large language models like ChatGPT and Chinese clones. That has boosted TSMC shares, which are up 19% so far this year.

However, CEO Wei said demand for AI is “not enough to offset” weak demand for chips in consumer electronics.

“Moving into the fourth quarter of 2023, AI-related demand remains strong but not enough to offset the overall cyclicality of our business,” Wei said during Thursday’s earnings call.

“We expect our business in the fourth quarter to be supported by the continued strong slope [up] of our 3nm technology, partially offset by continuous inventory adjustment on the customer side.”

TSMC expects fourth-quarter revenue to range between $18.8 billion and $19.6 billion.

Last week, the United States extended TSMC’s exemption from US trade sanctions on China, allowing it to continue shipping advanced chip equipment for its operations there.