Chip Demand Is Weakening Despite Taiwan Semiconductor's Profit Beat

Despite a rise in profits in the first quarter, Taiwan Semiconductor 2330 +0.59% Manufacturing forecast a slowdown in revenue in the second quarter. This is yet another indication of the semiconductor market being in a period of weakness for some time to come.

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In its quarterly report for the third quarter ended March 31, the world's biggest contract chip producer revealed that the net profit for the quarter rose from 202.73 billion Taiwanese dollars in the same quarter last year to 206.99 billion Taiwanese dollars this year.

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A year ago, TSMC (TICKER: TSM), with 508.63 billion Taiwanese dollars in revenues, had been down 4.8% from the same period one year earlier. In U.S. dollars, the company's revenue stood at $16.72 billion, down 4.8% from the same period last year. 

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Based on a Trade Algo poll, analysts had predicted a net profit of $6.30 billion on revenue of $16.95 billion for the company. The company's monthly sales figures had already raised concerns about the company falling short of analysts' expectations. 

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As the world's largest third-party foundry, TSMC dominates the market for high-end chips, including the main processors inside the iPhones (AAPL) and the chipsets destined for mobile devices made by Qualcomm (QCOM). The company also makes the processors used in Advanced Micro Devices AMD +0.18% (AMD) processors.

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Wendell Huang, TSMC's chief financial officer, explained that during the first quarter of 2023, customers adjusted their demand in response to the weakening macroeconomic conditions and softening end-market demand, which impacted the company's business. As we approach the second quarter of 2023, we anticipate the impact of further inventory adjustments by our customers to continue to impact our business.

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As per the company's announcement, the company expects its revenue for the second quarter to range between $15.2 billion and $16.0 billion. From a 45.5% operating profit margin in the first quarter, the company is expecting to achieve 39.5% to 41.5% for the second quarter.

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After ASML Holding (ASML), one of the most important chip-making suppliers to the global chip-making industry, issued a warning on Monday a day before TSMC made its own warning, ASML has noted "mixed signals" when it comes to overall demand despite improving profits and sales.