Shares of Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chip manufacturer, recorded a significant decline as the company's cautious industry forecast overshadowed the positive first-quarter results.
TSMC reported better-than-expected first-quarter results on Thursday, driven by high demand for advanced chips amid global enthusiasm for artificial intelligence. The company's net profit increased by 8.9% year-on-year, ending the three-quarter decline.
However, the solid results were overshadowed by a muted outlook for the industry. TSMC now expects the semiconductor industry, excluding memory chips, to grow by about 10% this year, compared to a growth forecast of "more than 10%" three months ago. The growth prospects for the foundry industry for 2024 were also cut to a mid to high teen percentage from a previous 20%.
Macroeconomic and geopolitical uncertainty persists, which could potentially affect consumer sentiment and end-market demand," said TSMC CEO C.C. Wei during an earnings call.
TSMC shares fell by as much as 7.2% on Friday morning and were last down 5.7% at 759 new Taiwan dollars ($23.37), marking the largest percentage drop since October 2022. The plunge in TSMC shares, one of the heavyweights of the stock exchange, led to a 3.5% decline in the Taiwan benchmark Taiex index.
Despite lower industry forecasts, Citi analysts still consider TSMC a long-term winner, which could continue to grow above average thanks to its solid position in the industry, particularly in advanced nodes and the promising demand for AI.
TSMC expects a continued strong demand from the high-performance computing segment, including AI chips, and a slight recovery in the smartphone segment, while the rest of the industry remains weak. The company initially expected an increase in demand from the automotive sector, but now anticipates a decline, according to Wei.
“The AI-related demand is very, very strong,” said Wei during the earnings call. Although the company has done its best to expand capacities, “it is still not enough,” he added.
Despite the muted market outlook, TSMC maintains its revenue growth forecast in the low to mid-20% range in US dollars.
