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Taiwan Semiconductor ((TSM - Free Report) ) is the giant chip foundry that serves the world's most important manufacturers, like Apple and NVIDIA.
These big clients are considered "fabless" because they rely on foundries like Samsung and Taiwan Semi (aka, TSMC) to conduct wafer fabrication of their designs.
On April 20, TSMC reported profit of $6.8 billion in its first quarter. On a per-share basis, the Hsinchu, Taiwan-based company said it had profit of $1.31, which beat the Zacks Consensus estimate of $1.21 by 8.25%.
The chip company posted revenue of $16.72 billion in the period, versus consensus of $16.81B. "Our first quarter business was impacted by weakening macroeconomic conditions and softening end market demand, which led customers to adjust their demand accordingly" said Wendell Huang, VP and CFO of TSMC.
And reaction to the quarter and outlook has skewed negative with estimates for this year being taken down by several analysts.
Since the report, the EPS consensus has fallen from $5.57 to $5.33, representing a 19% drop in annual growth versus last year.
Meanwhile, projected revenues of $71.6 billion for this year are expected to come in 5.65% shy against 2022.
What's Driving the Slowdown As NVDA Soars?
This softening outlook comes after years of strong high-tech growth -- TSMC revenues have more than doubled since 2019 -- and may now pivot on three different catalysts.
First, geopolitical tensions with Taiwan have scared some investors away, including Warren Buffett who reportedly sold all his TSM shares bought last year.
Second, as Artificial Intelligence and ChatGPT fuel the current fortunes of companies like NVIDIA ((NVDA - Free Report) ) and Microsoft ((MSFT - Free Report) ), the chips they need fabricated by TSM run on a much longer planning and production cycle.
And now we are hearing about delays in the next micro-revolution in chip architecture. Engineers regularly design and build integrated circuits and transistors at the sub-10 nanometer scale (a billionth of a meter).
The next evolution includes designs for 3nm. But as DigiTimes reported last week, TSMC's major fabless clients may defer their 3nm chip rollouts. "TSMC has obtained 3nm chip order commitments from vendors including AMD ((AMD - Free Report) ), NVIDIA, and Qualcomm ((QCOM - Free Report) ), which are all looking to defer the delivery of their 3nm generation devices," DigiTimes' Monica Chen and Jessie Shen reported, citing industry sources.
Thirdly, there is the complicated issue of semiconductor trade, tariffs, and subsidies. The WSJ is reporting that TSMC is pushing back on some subsidy conditions. With plans to invest $40 billion in two chip factories in Arizona, TSMC is arguing that some of the conditions Washington has attached to subsidies are "unacceptable."
As TSMC looks for up to $15 billion in government subsidies, The Wall Street Journal's Yang Jie reports the company is concerned about rules that could require it to share profits from the factories and provide detailed information about operations.
Bottom line on TSM: This key global player in semiconductor innovation is a core part of any tech investor's portfolio. But after blistering industry growth, the headwinds substantiate the pause.
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Bear of the Day: Taiwan Semiconductor (TSM)
Taiwan Semiconductor ((TSM - Free Report) ) is the giant chip foundry that serves the world's most important manufacturers, like Apple and NVIDIA.
These big clients are considered "fabless" because they rely on foundries like Samsung and Taiwan Semi (aka, TSMC) to conduct wafer fabrication of their designs.
On April 20, TSMC reported profit of $6.8 billion in its first quarter. On a per-share basis, the Hsinchu, Taiwan-based company said it had profit of $1.31, which beat the Zacks Consensus estimate of $1.21 by 8.25%.
The chip company posted revenue of $16.72 billion in the period, versus consensus of $16.81B. "Our first quarter business was impacted by weakening macroeconomic conditions and softening end market demand, which led customers to adjust their demand accordingly" said Wendell Huang, VP and CFO of TSMC.
And reaction to the quarter and outlook has skewed negative with estimates for this year being taken down by several analysts.
Since the report, the EPS consensus has fallen from $5.57 to $5.33, representing a 19% drop in annual growth versus last year.
Meanwhile, projected revenues of $71.6 billion for this year are expected to come in 5.65% shy against 2022.
What's Driving the Slowdown As NVDA Soars?
This softening outlook comes after years of strong high-tech growth -- TSMC revenues have more than doubled since 2019 -- and may now pivot on three different catalysts.
First, geopolitical tensions with Taiwan have scared some investors away, including Warren Buffett who reportedly sold all his TSM shares bought last year.
Second, as Artificial Intelligence and ChatGPT fuel the current fortunes of companies like NVIDIA ((NVDA - Free Report) ) and Microsoft ((MSFT - Free Report) ), the chips they need fabricated by TSM run on a much longer planning and production cycle.
And now we are hearing about delays in the next micro-revolution in chip architecture. Engineers regularly design and build integrated circuits and transistors at the sub-10 nanometer scale (a billionth of a meter).
The next evolution includes designs for 3nm. But as DigiTimes reported last week, TSMC's major fabless clients may defer their 3nm chip rollouts. "TSMC has obtained 3nm chip order commitments from vendors including AMD ((AMD - Free Report) ), NVIDIA, and Qualcomm ((QCOM - Free Report) ), which are all looking to defer the delivery of their 3nm generation devices," DigiTimes' Monica Chen and Jessie Shen reported, citing industry sources.
Thirdly, there is the complicated issue of semiconductor trade, tariffs, and subsidies. The WSJ is reporting that TSMC is pushing back on some subsidy conditions. With plans to invest $40 billion in two chip factories in Arizona, TSMC is arguing that some of the conditions Washington has attached to subsidies are "unacceptable."
As TSMC looks for up to $15 billion in government subsidies, The Wall Street Journal's Yang Jie reports the company is concerned about rules that could require it to share profits from the factories and provide detailed information about operations.
Bottom line on TSM: This key global player in semiconductor innovation is a core part of any tech investor's portfolio. But after blistering industry growth, the headwinds substantiate the pause.