Semiconductor Sector (Mostly) Moves To The Green Despite TSMC's Pessimistic Guidance: Find Out Why

Stock from Taiwan Semiconductor Mfg. Co. Ltd. TSM rose 4.1% by mid-day Thursday, even as the company predicted worse revenue next quarter when compared to last year.

In its latest earning call for first quarter of 2023, TSMC posted first-quarter revenue at $16.72 billion, a 4.8% decrease year-over-year and a 16.1% decrease from the previous quarter.

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Falling Smartphone Sales, Rising Auto Sales

The global smartphone market is down 12% in the first quarter of the year, according to a report by Insider Intelligence, directly affecting TSMC's demand for its chip manufacturing services.

In February, Apple Inc AAPL reported a 8% drop in iPhone sales for the first quarter of the fiscal year 2023, as compared to the same quarter in 2022.

Smartphone sales have fallen as consumers globally prioritize covering basic needs like energy consumption, which has risen in the last year due to geopolitical instability related to the Ukraine/Russia conflict and China/U.S. military tensions.

Apple, which is one of TSMC's largest customers, also saw drops in sales on most of its flagship products including Mac computers, iPads and wearables, against a record-breaking quarter in the first quarter of 2022.

The automotive end market was the only one to grow this first quarter amongst the end markets that make up demand for TSMC's chips.

In the U.S. alone, the auto industry sold 15.3 million units during the first quarter, an increase of 8.5% from the same quarter last year, according to Cox Automotive.

Can A.I. Save The Day? Earlier this week, an HSBC analyst gave a double upgrade to NVIDIA Corporation NVDA, another big TSMC customer. Analyst Frank Lee double-upgraded NVIDIA to Buy from Reduce and increased the price target to $355 from $175, based on the opportunity behind the rise of AI technology for regular consumers.

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Powering Up Domestic Chipmaking: Meanwhile, both the U.S. and China continue to double down on investments in semiconductor manufacturing, as a dependency on Taiwan could bring risk in the near future in the midst of rising geopolitical tensions over the sovereignty of the island state.

On Wednesday, the South China Morning Post reported a $74 billion (US dollar) investment from the manufacturing-heavy Guangdong province in China. The amount is to be spent over 40 new projects aimed at achieving a self-sufficient semiconductor industry to replace the 1 trillion yuan that the province spends annually on semiconductor imports.

For its part, the U.S. continues to execute its CHIPS act, which includes billions in investment to strengthen the country's semiconductor manufacturing capacity. 

TSMC is currently investing $40 billion in two new plants in Arizona to boost domestic chip-making capabilities. The company is looking to obtain $15 billion in subsidies from the U.S. government in the form of tax breaks and grants, and is leveraging its influence to negotiate some of the act's original mandates, like sharing profits.

Other chipmakers and semiconductor-related stocks also rode through Thursday in the green by the time of publication:

• Broadcom Inc AVGO was up 1.1%
• Micron Technology Inc MU was up 1.25%.
• Advanced Micro Devices, Inc. AMD was up 0.29%

These stocks were down slightly:

• Qualcomm Inc QCOM was down 0.19%.
• Intel Corporation INTC was down 0.72%.

ETFs in the semiconductor sector enjoyed a sunny day.

• VanEck Semiconductor ETF SMH was up 0.30%.
• BlackRock's iShares Semiconductor ETF SOXX was up 0.086%
• Direxion Daily Semiconductor Bull 3X Shares SOXL was up 0.20%