TSMC's Q2 Profit Falls 23 Per Cent Amid Declining Electronics Demand

TSMC, the most valuable listed company in Asia, also reported a 13.7 per cent year-on-year drop in second-quarter revenue to $15.68 billion, which aligned with the company's earlier forecast.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chipmaker, reported a 23 per cent drop in net profit in the second quarter (Q2) as demand for consumer electronics and semiconductor chips remains low amid rising interest rates and global economic challenges, the media has reported. The world's largest contract chipmaker on Thursday said that during the April-June quarter, net profit dropped to 181.8 billion New Taiwan dollars ($5.85 billion) from 237.0 billion New Taiwan dollars a year earlier.

TSMC, the most valuable listed company in Asia, also reported a 13.7 per cent year-on-year drop in second-quarter revenue to $15.68 billion, which aligned with the company's earlier forecast. In 2022, TSMC's shares on the Taipei stock exchange declined by 27.1 per cent, but they have rebounded this year with a 30 per cent increase, leading to a market value of $486.5 billion.

Although, a major supplier to Apple and Nvidia, TSMC's second-quarter finances remained higher than analysts estimate. According to a Reuters report, 21 analyst forecasts compiled by Refinitiv showed that the chipmaker is expected to post 172.55 billion New Taiwan dollars in profits.

TSMC expects profitability to worsen in the next quarter, with lower gross and operating profit margins. While there's been an increase in AI-related demand, TSMC's CEO noted that it wouldn't fully offset the cyclicality of their business. 

TSMC's quarterly revenue reached 480.84 billion New Taiwan dollars, down 10 per cent from the previous year. The firm expects third-quarter revenue to remain steady in the range of $16.7 billion to $17.5 billion.

TSMC said business was impacted by macroeconomic headwinds “which dampened the end market demand, and led to customers’ ongoing inventory adjustment.”

“Moving into third quarter 2023, we expect our business to be supported by the strong ramp of our 3-nanomenter technologies, partially offset by customers’ continued inventory adjustment,” Wendell Huang, CFO of TSMC said.

According to a CNBC report, TSMC is said to produce the next iPhone processor using 3-nanometer technology, potentially leading to more powerful and efficient chips. However, the company's repeated warnings on "inventory adjustment" may continue to impact revenue. The global demand for smartphones and laptops has declined post-pandemic, causing excess chip inventories and falling prices. Despite this, there are signs of recovery in the smartphone market as vendors prioritize clearing old models to make room for new launches, the report said. 

Another major customer, Nvidia has also predicted increased chip demand this year due to growing interest in AI, driven by generative AIs like Chat GPT.