TSMC third-quarter profit to slide 30%, focus on how much growth to come

Taiwan Semiconductor Manufacturing Co Ltd is expected to report a 30% slump in third-quarter profit on Thursday but analysts predict robust growth next year as the chip industry emerges from its current downturn.

The likely decline in profit also reflects a strong performance last year, when the company was still riding high on pent-up post-pandemic demand.

The world’s largest contract chipmaker is set to report net profit of T$195.9 billion ($6 billion) for July-September – its second straight quarter of profit decline, according to an LSEG SmartEstimate drawn from 19 analysts. SmartEstimates give greater weighting to forecasts from analysts who are more consistently accurate.

Revenue for the quarter came in at around $17 billion, according to TSMC figures, down 20% from a year earlier and roughly the middle of the company’s forecast range.

Global demand for semiconductors began to weaken in the second half of last year, but analysts say inventories at smartphone and computer makers are running down and restocking demand is expected to pick up.

Given that, much of Thursday’s focus will be on TSMC’s outlook for the fourth quarter and beyond.

Morgan Stanley analysts have forecast 10% revenue growth for the fourth quarter but also said in a research note that “guidance may surprise to the upside,” citing strong demand for high-end chips used in artificial intelligence as one factor.

The AI boom has helped drive up the price of shares in Asia’s most valuable company, with TSMC’s Taipei-listed stock having surged 23% so far this year.

An LSEG SmartEstimate puts TSMC’s 2024 revenue growth at around 22%.

Sources have said, however, that TSMC has been nervous about customer demand and told its major suppliers to delay the delivery of high-end chip-making equipment, although they added that suppliers expect the delay to be short-term.

Some analysts are also reining in their optimism somewhat.

Fubon Securities expects a slow start to next year for TSMC, with 10% growth in the first quarter, predicting order cancellations towards the year end and mild restocking demand. In particular, it is concerned that Apple, a major customer, may revise down its orders.

“We think the market consensus is still too bullish,” it said in a research note.

The company is due to report at 0600 GMT on Thursday.