After the Taiwanese chipmaker reported second-quarter profit that beat expectations, TSMC (2330. TW) shares increased more than 3% on Friday, outpacing the broader market (.TWII). Analysts are optimistic about the company’s outlook despite some downside worries.
The largest contract chip manufacturer in the world and a significant Apple Inc (AAPL.O) supplier, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), reported a 76.4 percent increase in earnings for the April–June 2022 period, to T$237.0 billion ($7.92 billion).
Although it signaled cooling demand from consumer electronics customers, which it anticipates cutting chip stockpiles over the coming quarters until 2023, the company said it was “very confident” about its long-term prospects.
Due to waning consumer demand and skyrocketing inflation, the market has been on guard against a potential chip glut, especially after Micron Technology Inc. (MU.O) warned last month that a chip shortfall in some industries was swiftly developing into a glut.
The results of TSMC should temporarily allay some of the chip-related concerns in the market
J.P. Morgan analysts hailed TSMC’s admission of the dip as a “good start,” anticipating a minor increase in the stock price of the chipmaker shortly.
“But confirmation of downturn from other semi companies in this earnings season is necessary for a definitive clearing event.”
Investors are concerned that the decreasing consumer demand in China, the US, and Europe will hurt Taiwan’s export-dependent economy, since TSMC’s shares have fallen by about 21% so far this year, in line with the larger local market.
According to Morningstar analysts, the enhanced TSMC allocations by Qualcomm Inc. (QCOM.O) and Nvidia Corp. (NVDA.O) would have largely mitigated the effects of the overall softening demand throughout the following year.
“We note that the duo has contracted TSMC as their primary foundry (if not sole) for most of 2023’s consumer products because of low production yields at Samsung” Electronics Co Ltd.