Shares of Taiwan Semiconductor Manufacturing are down on Thursday after the world’s largest chip manufacturer beat analysts’ expectations for first-quarter earnings.
The problem? While TSMC was upbeat about demand for chips to power artificial-intelligence technology, which it expects to represent more than 10% of revenue this year, management offered a downbeat assessment of the semiconductor industry as a whole.
On a call with analysts, the company cut its forecast for overall market growth this year, excluding memory chips, to 10%, down from “more than 10%” previously.
American depositary receipts of TSMC were down by 5.5% to $131.66 after the market opened. For comparison, the Nasdaq Composite was down 1.4%. TSMC’s drop is still a relatively small dent in the stock’s 56% rise over the past 12 months.
TSMC posted a first-quarter net profit of 225.49 billion New Taiwan dollars ($6.97 billion), up 8.9% from the same period a year earlier. Analysts had expected a net profit of 215.40 billion New Taiwan dollars, according to FactSet .
“Management said the main reason for the reduced industry outlook was the lowered expectation for automotive semis. Previously, management expected automotive to grow, and now expects the segment will decline in 2024,” wrote Needham analyst Charles Shi in a research note.
The PHLX semiconductor index was down 1.3%, with auto-focused chip stocks hit particularly hard. NXP Semiconductors was down 3.7%, ON Semiconductor was down 2.3%, and Texas Instruments was down 1.6%.
TSMC makes the main processors inside Apple iPhones, Qualcomm mobile chipsets, and processors made by Nvidia and Advanced Micro Devices. It dominates the high-end chip manufacturing market, including the 3-nanometer and 2-nanometer chips that are expected to power the next generations of smartphones.
TSMC said first-quarter revenue from its high-performance computing segment, which includes AI chips, rose about 3% from the preceding quarter, while revenue from smartphones fell 16% and revenue from its Internet of Things segment rose 5%.
“Our business in the first quarter was impacted by smartphone seasonality, partially offset by continued HPC [high-performance computing]-related demand,” said Wendell Huang, chief financial officer of TSMC, in a statement.
Quarterly revenue in U.S. dollars was $18.87 billion, up 13% from a year before. For the second quarter, TSMC projected revenue of between $19.6 billion and $20.4 billion. The company said earlier this year that it expects revenue growth this year overall to be at least 20%, more than double the rate of the wider chip market.
“Moving into second quarter 2024, we expect our business to be supported by strong demand for our industry-leading 3 nanometer and 5 nanometer technologies, partially offset by continued smartphone seasonality,” Huang said.
