TSMC's Q3 sales should be able to surpass the midpoint of its targeted $16.7-$17.5 billion range, even amid ongoing global semiconductor destocking, particularly in the smartphone sector.
Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker and a major Apple Inc supplier, is slated to report its second-quarter 2023 results before the market opens on Thursday, Oct 19th. The consensus adjusted net income estimate is $5.876B, according to Bloomberg.
Latest Results
For the second quarter ended June, TSMC reported a 23.3% fall in net profit - beating forecasts - although it was its first on-year drop in quarterly profit since the second quarter of 2019 when it fell 7.6%. TSMC said second-quarter revenue dropped 13.7% year-on-year to $15.68 billion, in line with the company's previous forecast.
Q3 Guidance
Based on the Company’s current business outlook, management expects the overall performance for third quarter 2023 to be as follows:
Revenue is expected to be between US$16.7 billion and US$17.5 billion; And, based on the exchange rate assumption of 1 US dollar to 30.8 NT dollars;
Gross profit margin is expected to be between 51.5% and 53.5%;
Operating profit margin is expected to be between 38% and 40%.
3nm Is the Focus
TSMC's Q3 sales should be able to surpass the midpoint of its targeted $16.7-$17.5 billion range, underpinned by sustained robust demand for its CoWoS advanced packaging service, even amid ongoing global semiconductor destocking, particularly in the smartphone sector. A favorable exchange rate dynamic, with the US dollar strengthening against the Taiwan dollar during Q3, could bolster TSMC's gross profit margin beyond the guided 52.5% mark.
In the upcoming earnings briefing, investors will likely focus on the rate that customers, such as Qualcomm and AMD, migrate to its leading-edge 3nm process, in addition to TSMC's progress on global capacity expansion amid competition from Intel and Samsung.
To See Margin Upside
Analyst Mehdi Hosseini, who has a positive rating on Taiwan Semiconductor (TSM) shares, said he thinks gross margins could be strong due to the average selling price for wafers, moderation in depreciation and amortization, "favorable" foreign exchange rates and better utilization rates.
A consensus of analysts expect Taiwan Semiconductor to earn $1.16 per share on $16.64B in revenue for the third-quarter.
Hosseini also said that there is a lack of visibility on wafer shipments for the second-half of 2024, especially around smartphone applications.
"All in all, while inventory overhang for broader Semis is expected to sustain into [the first-half of 2024], TSM is expected to weather the storm given all the "new" GPU/CPUs products ramping with better than feared [gross margin]," Hosseini wrote in an investor note. "This has been the base of our [upgrade] since early 2023, and further underscored by the recent upsides."
Taiwan Semiconductor (TSM), which still reports monthly sales, including giving an update on September earlier this month, likely generated a 13.7% sequential increase in third-quarter revenue, above its own guidance, aided by artificial intelligence and the Android smartphone supply chain, Hosseini posited.
"TSM is outperforming the peer group like UMC and the overall Semi industry as it benefits from customers' new products ramps," Hosseini explained, adding that he expects fourth-quarter revenue guidance to be up 8% to 10% sequentially, aided in part by higher wafer shipments and higher selling prices.
Hosseini added that he still expects Taiwan Semiconductor (TSM) to report capital spending plans of about $32B for 2023, with commentary suggesting a 10% to 15% decline year-over-year for 2024 to about $28B, due in part to increased equipment reuse, continued delays in its Arizona fab plant and the lack of visibility on the second-half capacity needed by Apple (AAPL).
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