Taiwan Semiconductor Manufacturing, the world's largest contract chipmaker, on Thursday posted mixed results for the first quarter and gave a weak outlook for the current period. Still, TSM stock rose after the report.
Taiwan Semiconductor, better known as TSMC, earned $1.31 per U.S. share on sales of $16.72 billion in the March quarter. Analysts polled by FactSet had predicted earnings of $1.21 a share on sales of $17 billion. On a year-over-year basis, TSMC earnings dropped 3% while sales declined 5%.
For the current quarter, TSMC predicted revenue of $15.2 billion to $16 billion. The midpoint of $15.6 billion is below Wall Street's target of $16.13 billion. In the year-earlier period, TSMC generated $17.87 billion in sales.
Taiwan Semiconductor also lowered its 2023 revenue outlook from "slight growth" to a low- to mid-single-digit decline.
TSM Stock Rises After Report
On the stock market today, TSM stock climbed 2.4% to close at 89.29.
Taiwan Semiconductor produces chips for fabless semiconductor firms such as AMD, Apple, Nvidia, Qualcomm and others.
"Our first-quarter business was impacted by weakening macroeconomic conditions and softening end-market demand, which led customers to adjust their demand accordingly," Chief Financial Officer Wendell Huang said in a news release.
He added, "Moving into second-quarter 2023, we expect our business to continue to be impacted by customers' further inventory adjustment."
The second quarter should mark the bottom of the current downtrend, TSMC executives said. They expect a gradual recovery in the second half of the year.
Maintains Equipment Spending Target
TSMC's report is "incrementally negative" for semiconductor stocks, Wells Fargo Securities analyst Aaron Rakers said in a note to clients.
Chip inventories are taking longer to reduce, he said. Plus, TSMC signaled a "significant slowdown" in its high-performance computing business, which is highly correlated with AMD and Nvidia, he said.
Meanwhile, TSMC reiterated its outlook for capital equipment spending for the year of $32 billion to $36 billion. Investors had expected a cut to about $30 billion after media reports earlier in the week speculated on a reduction in chip gear spending, Rakers said. That is a "modest positive" for semiconductor equipment stocks, he said.
Wedbush Securities analyst Matt Bryson reiterated his outperform rating on TSM stock after the report. Although Taiwan Semiconductor is experiencing a soft patch amid the chip cycle downturn, the company is well positioned long term, he said in a note to clients.
In the first quarter, shipments of 5-nanometer chips accounted for 31% of TSMC's total wafer revenue while 7-nanometer chips accounted for 20%. TSMC defines 7-nanometer and smaller nodes as advanced technologies. Circuit widths on chips are measured in nanometers, which are one-billionth of a meter.
TSM Stock Is On IBD Tech Leaders List
TSM stock ranks sixth out of 30 stocks in IBD's semiconductor manufacturing industry group, according to IBD Stock Checkup. Taiwan Semiconductor has an IBD Composite Rating of 94 out of 99.
IBD's Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock's strengths. The best growth stocks have a Composite Rating of 90 or better.
Further, TSM stock is on the IBD Tech Leaders list.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
