Taiwan Semiconductor Manufacturing will report its earnings Thursday in the midst of a grim period for chip stocks.
The world’s largest contract chip maker looks set to continue outperforming the wider sector but that might not be enough to lift the stock against a gloomy outlook for the personal computer market and geopolitical tensions.
TSMC American depositary receipts (ticker:TSM) are down 47% so far in 2022, despite the company raising its 2022 revenue growth outlook to around 35% from under 30% with its second-quarter results in July. Since then the outlook for the semiconductor sector has turned bleaker. Last week Advanced Micro Devices (AMD), a major customer for TSMC, said that it would miss its revenue guidance in the third quarter, citing weakening demand for PCs.
“We don’t believe TSMC is immune from deteriorating end market conditions, with AMD’s miss the latest reminder of weakening end markets. However, we do think that TSMC will outperform markets in general due to continued share gains” Wedbush analyst Matt Bryson said in a note.
Any comment relating to TSMC’s largest customer Apple (AAPL) will be closely watched. At the end of September, Bloomberg reported that Apple had reversed plans to boost iPhone 14 production later this year after an expected surge in demand failed to materialize.
Geopolitical tensions are another headwind. The company’s ADRs fell nearly 6% on Tuesday, with the sector hit by concerns about new rules from the U.S. Commerce Department on exporting chips and related equipment to China. TSMC has chip fabrication facilities in China, including in the eastern city of Nanjing.
TSMC has declined to comment on the new U.S. rules during the blackout period ahead of its earnings report and any comments on the potential effects of the new regulations will be under scrutiny.
The company has already reported monthly sales figures for September of $208.2 billion Taiwanese dollars ($6.53 billion), down 4.5% from the previous month but up 36% from the prior year.
Wedbush’s Bryson said the latest figures put quarterly sales in-line with management’s guidance for the quarter. Analysts expect sales of $604.9 billion Taiwanese dollars and net income of $264.8 billion Taiwanese dollars, according to the FactSet consensus. Earnings per share are expected to be $10.26 Taiwanese dollars.
TSMC’s sales and margins are set to enjoy a tailwind from the more than 6% deterioration in the Taiwanese dollar against the U.S. dollar since it last reported, as the chipmaker’s revenue are largely dollar denominated, while its expenses are mostly in Taiwanese dollars.
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