Taiwan Semiconductor Manufacturing's latest monthly sales have excited some bulls who say a chip recovery is imminent. But J.P. Morgan cautions that the uptick in revenue might not be a sign of a rise in demand.
On Friday, the world's largest third-party semiconductor chip manufacturer reported its sales numbers for October. TSMC's (ticker: TSM) revenue for the month grew by 16% from the prior year and jumped 35% from September. It was the first month of year-over-year growth since February.
"A frequently asked question from investors is whether this indicates a sudden improvement in demand. By and large, we believe it's NOT," analyst Gokul Hariharan wrote. "Given, weak end-demand and anticipation from the supply chain for an iPhone order cut, we do not expect near-term upside to N3 [the manufacturing process for the latest iPhones] wafer orders either."
In Tuesday trading, TSMC's American depositary receipts rose 2.58% to $98.91.
TSMC dominates the market for high-end chips. It makes the main processors inside Apple $(AAPL)$ iPhones, Qualcomm $(QCOM)$ mobile chipsets, and processors made by Advanced Micro Devices $(AMD)$. According to TrendForce, TSMC has about 56% market share of the third-party chip-manufacturing business, followed by Samsung with 12%.
The analyst said chip wafer orders typically take three to four months to be reflected in TSMC's sales. That means October's stronger sales numbers are likely from the timing of a manufacturing ramp for the latest iPhone processors and the new M3 processor Macs that Apple recently announced.
"Demand recovery in other [less advanced manufacturing] nodes is still quite tepid and any sudden change in orders is unlikely to be reflected in TSMC's 4Q23 revenues due to long cycle times," he wrote.
