TSMC Expected to Report 27% Decline in Q2 Net Profit, but Analysts Predict Recovery

Taiwanese chipmaker TSMC (Taiwan Semiconductor Manufacturing Co Ltd) is anticipated to announce a 27% decrease in net profit for the second quarter of the year. This decline is attributed to the global economic challenges that have impacted semiconductor demand. However, analysts remain optimistic about the company’s business performance, forecasting an improvement in the current quarter.

Factors Affecting Second Quarter Performance

TSMC, the world’s largest contract chipmaker and a significant supplier for tech giants like Apple company and Nvidia, is projected to report a net profit of T$172.53 billion ($5.58 billion) for the April-June period. This represents a decline from T$237.0 billion in the same period the previous year. The expected profit decrease is primarily due to the exceptional performance TSMC achieved in the previous year, driven by pent-up post-pandemic demand.

Analysts from Fubon Investment in Taiwan believe that the second quarter marks the low point of the current downcycle. While they anticipate an improvement in the third quarter, they expect it to be weaker than usual due to ongoing inventory build-ups that are still being resolved. However, a senior Taiwan fund manager expressed confidence in a profit rebound during the third quarter. The manager cited expectations for increased demand in the AI sector and the launch of new iPhones ahead of the year-end holiday shopping season.

Taiwan’s Advantage in the AI Market

The anonymous fund manager pointed out that Taiwan has yet to fully benefit from the electric vehicle (EV) market, as China dominates the industry and houses most EV suppliers. However, the situation is different when it comes to artificial intelligence (AI). Taiwan is poised to reap significant benefits from AI, given its comprehensive AI supply chain. This advantage positions the country to capitalize on the growing demand for AI applications.

Seasonal Patterns and TSMC’s Performance

The second quarter typically represents a slow period for sales in the tech industry. However, demand usually picks up in the third quarter, leading into the year-end shopping season. Despite the challenges faced by TSMC, the company managed to achieve a 2% increase in net profit for the quarter ending in March, compared to the previous year. Nonetheless, this growth rate was the smallest since mid-2019 due to the adverse impact of global economic conditions on chip demand.

Positive Outlook for TSMC’s Future

TSMC recently noted a substantial rise in orders driven by the increasing demand for AI applications. As a result, the company expects a stronger performance in the second half of the year compared to the first. This positive outlook has contributed to a nearly 30% surge in TSMC’s stock on the Taipei-listed market since the beginning of the year, outperforming the broader market.

Third-Quarter Guidance and Earnings Update

TSMC will provide guidance for the third quarter and update its previous forecasts during its earnings call on Thursday. For the second quarter, the company reported revenue of T$480.8 billion ($15.53 billion), falling within the forecast range of $15.2 billion to $16 billion issued in April. This figure represents a decline from $18.16 billion in the same period last year.

Despite the expected decrease in net profit for the second quarter, analysts and industry observers remain optimistic about TSMC’s prospects, particularly as demand for AI applications continues to rise. The market will eagerly await the company’s guidance and updates to gain further insights into its future performance.