Taiwan’s Semii earnings have a warning for the chip industry

Analysts expected revenue of $16.95 billion, according to a survey by FactSet. The company’s monthly sales numbers had already alerted investors that sales were likely to be lower than previous Wall Street calls and the company’s previous guidance.

TSMC dominates the high-end chip market. It makes the main processors inside Apple (stock ticker: AAPL) iPhones, Qualcomm (QCOM) mobile chipsets, and processors made by Advanced Micro Devices (AMD).

Wendell Huang, Chief Financial Officer of TSMC, said, “Our business in the first quarter was affected by weak macroeconomic conditions and declining end market demand, which prompted customers to adjust their order accordingly.” “Going into the second quarter of 2023, we expect our business to continue to be affected by the additional adjustment to customer inventory.”

The company said its second-quarter revenue is expected to range between $15.2 billion and $16.0 billion. The range was less than the roughly $16.2 billion that analysts expected earlier this week. Management also expects operating profit margin for the second quarter to be between 39.5% and 41.5%, down from 45.5% in the first quarter.

In addition, TSMC lowered its annual revenue forecast for 2023 to “low-to-mid single-digit” decline from the slight growth it expected. I stuck to a call that capital spending — money to build chip plants and buy semiconductor equipment — would be $32 billion to $36 billion. Some analysts expected a decline.

Investors may have been preparing for worse news. TSMC’s US deposit yield rose 2.4% to $89.28 in early trade Thursday.

But the company’s expected cuts may not be enough. New full-year revenue guidance still points to a strong recovery in the second half versus the first two quarters. And there’s no evidence that TSMC’s major end markets for smartphones and computers — which accounted for 34% and 44% of its revenue in the first quarter, respectively — will rebound anytime soon.

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One of the largest vendors of IT hardware said its first-quarter results will miss its forecast by a wide margin, citing a sharp slowdown in corporate IT spending. The company also said it now expects overall sales in the US IT market to decline at a high single-digit rate in 2023.

PC sales prospects are declining. Earlier this month, research firm IDC said global shipments of personal computers fell 29% in the March quarter compared to a year earlier. This follows a 28% decline from a year earlier in the December quarter and a 15% decline in the September quarter.

All of this raises the possibility that Taiwan Semiconductor’s next results may not match its expectations.

Write to Tae Kim at [email protected] and Adam Clarke at [email protected]