TSMC Guides To Below-Consensus Q1 Amid Continued End Market Weakness, Inventory Corrections

Zinger Key Points
  • TSMC's fourth-quarter revenue came in at the low end of the company's guidance.
  • The tech sector could have been under pressure in Q4 amid demand weakness, inventory correction and production disruptions.

Taiwan Semiconductor Manufacturing Company Limited TSM reported Thursday fourth-quarter revenue that came in below consensus estimate but earnings beat expectations, helped by margin expansion achieved on the back of increased sales of advanced chips and cost controls. The company expects the soft patch to continue into the first quarter.

What Happened: Hsinchu, Taiwan-based TSMC reported fourth-quarter net revenue of NT $625.53 billion, up 42.8% year-over-year. Sequentially, the revenue growth was a more modest 2%.

See Also: How to Buy TSMC (TSM) Stock

In dollar terms, fourth-quarter revenue was $19.93 billion, up 26.7% year-over-year. Quarter-over-quarter, the dollar revenue fell 1.5%. The company had previously guided revenue of $19.9 billion to $20.7 billion. Analysts, on average, estimates sales of $20.56 billion.

Net income came in at NT $295.904 billion, representing a 78% year-over-year jump and a 5.4% sequential increase. This exceeded estimates of NT $287.8 billion, according to Bloomberg. The earnings per share came in at NT $11.41, up 78% NT $6.41 a year ago.

The gross margin and operating margin came in at 62.2% and 52%, respectively. This marked an increase from the third-quarter numbers of 60.4% and 50.6%, respectively.

"Despite the continued ramp-up of TSMC's industry-leading 5nm process, TSMC's revenue performance in the fourth quarter was still affected by weak end market demand and customer inventory adjustments," said Huang Renzhao, CFO and spokesperson of the company.

The company noted that its 5-nanometer chip shipments accounted for 32% of wafer revenue and the 7-nm made up 22% of the total revenue. Advanced technologies, thus, made up 54% of the total revenue, the same proportion as in the third quarter.

Why It’s Important: TSMC is the world’s biggest chip supplier and its chips are used by several end markets, including mobile devices, high-performance computing products, automotive electronics and IoT.

The company announced at the end of 2022 that it has begun mass production of its most advanced 3nm processor node technology, although about six months behind rival Samsung.

With geopolitical risks threatening production and supply chain, the company has embarked on setting up manufacturing sites closer to its customers. It is currently constructing a plant in Arizona that would supply 4nm chips in 2024. Another plant producing 3nm chips will begin functioning from the same location in 2026.

Apple Inc. AAPL analyst Gene Munster said in a tweet on Wednesday that TSMC’s results and guidance will have a bearing on the tech giant’s December quarter results and forward commentary.

What's Next: TSMC said it expects the overall economic situation to remain weak in the first quarter of 2023. It sees its performance impacted by continued weak end-market demand and further inventory adjustments by customers.

The company guided to first-quarter revenue of $16.7 billion to $17.50 billion, missing the consensus estimate of $17.71 billion. It expects gross and operating margins to come in at 53.5%-55.5% and 41.5%-43.5%, respectively.

Price Action: U.S.-listed ADRs of TSMC closed Wednesday’s session up 0.63%, at $81.78, according to Benzinga Pro data.

Read Next: 20% Stock Rally, Rising M&A Activity, Apple's AR Glasses, Incremental Job Cuts And More: Analyst Shares Christmas Wish List For Tech Sector

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