Taiwan Semiconductor Manufacturing, the world's largest contract chipmaker, on Thursday beat expectations for the first quarter. But TSM stock fell on the company's cautious industry outlook.
The chip foundry, better known as TSMC, earned $1.38 per U.S. share on sales of $18.87 billion in the March quarter. Analysts polled by FactSet had expected earnings of $1.30 a share on sales of $18.31 billion. In the year-earlier period, TSMC earned $1.30 per U.S. share on sales of $16.62 billion, FactSet said.
With its Q1 report, TSMC returned to sales and earnings growth after four consecutive quarters of declines on a year-over-year basis. In U.S. dollars, Taiwan Semiconductor's sales rose 12.9% while earnings climbed 6.2%.
For the current quarter, TSMC expects revenue of $19.6 billion to $20.4 billion. The midpoint of $20 billion topped Wall Street's target of $19.44 billion. In the second quarter last year, TSMC generated revenue of $15.47 billion.
TSM Stock Drops After Report
On the stock market today, TSM stock slid 4.9% to close at 132.27.
TSMC's customers include Apple, AMD, Nvidia, Qualcomm and more.
"Our business in the first quarter was impacted by smartphone seasonality, partially offset by continued HPC (high-performance computing)-related demand," Chief Financial Officer Wendell Huang said in a news release.
He added, "Moving into second quarter 2024, we expect our business to be supported by strong demand for our industry-leading 3-nanometer and 5-nanometer technologies, partially offset by continued smartphone seasonality."
Circuit widths on chips are measured in nanometers, which are one-billionth of a meter.
TSM Stock Is Recent Breakout
In the first quarter, shipments of 3-nanometer chips accounted for 9% of total wafer revenue, 5-nanometer accounted for 37%, and 7-nanometer accounted for 19%. Advanced technologies, defined as 7-nanometer and smaller nodes, accounted for 65% of total wafer revenue, TSMC said.
TSMC lowered its industry growth expectations slightly but kept its company target. The company reiterated its guidance for revenue growth in the low to mid 20% range this year. However, it now sees industry sales growth, excluding memory chips, of 10% for the year vs. its prior outlook for more than 10%.
"AI remains the bright spot" for Taiwan Semiconductor as the company sees a gradual recovery in most of its end markets this year, Barclays analyst Simon Coles said in a client note. Barclays kept its overweight rating on TSM stock but raised its price target to 150 from 145.
TSMC executives forecast slow recoveries in the markets for smartphones, PCs and traditional servers. But the company now expects its automotive chip sales to be down for the year, vs. its previous estimate for growth.
On Jan. 18, TSM stock broke out of a cup-with-handle base at a buy point of 105.52, according to IBD MarketSurge charts. The breakout occurred after TSMC delivered a beat-and-raise report for the fourth quarter.
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