Taiwan Semiconductor profits raise doubts about outlook

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Photograph by Sam Yeh / AFP / Getty Images


Taiwan Semiconductor Manufacturing Co.

had good news and bad news for investors Thursday morning.

He reported Second quarter revenue which was a little higher than expected and said that while the crippling global chip shortage will continue into next year, it may improve a bit in the coming months. Yet the high demand that contributed to the shortage has been a double-edged sword. Profit margins began to shrink as the company increased production and foreign investment liquidity poured into Taiwan’s financial markets, raising the local currency. The operating result is below expectations.

Concerns about the profitability of Taiwan Semi (ticker: TMS) may have scared investors. Taiwan Semi’s U.S.-traded U.S. certificates of deposit fell nearly 5% to $ 118.65 on Thursday afternoon.

The world’s largest contract semiconductor manufacturer declared his net profit rose 11% to NT $ 134 billion ($ 4.8 billion), or NT $ 5.18 per share listed in Taiwan, as revenue jumped 20% to NT $ 372 billion. Profit was a little lower than the adjusted earnings per share of NT $ 5.23 per share that analysts expected, but revenue exceeded expectations of NT $ 371.7 billion.

The manufacturer of crisps for

Apple,

Advanced micro-systems,

and

Intelligence

said its performance in the second quarter was due to high performance computing and automotive demand. Revenue in both areas increased 12% sequentially. Sales in all of the company’s end markets increased by double-digit percentages.

Smartphones accounted for around 42% of total revenue, and high performance computing accounted for around 39% of revenue.

Although Taiwan Semi continues to add capacity at a breakneck rate in its chip manufacturing portfolio, ranging from more advanced processors to less sophisticated chips for uses such as auto parts, executives said the shortage Global would persist until 2022. There was good news for automakers as the company said it had increased the capacity of these chips by 60%, which will help alleviate shortages in the third quarter.

But for the first time since the second quarter of 2019, Taiwan Semi’s operating profit fell short of expectations, reaching NT $ 145.7 billion, while analysts predicted NT $ 150 billion. Operating profit, also known as operating profit, is sometimes viewed by investors as a more accurate measure of a company’s performance because it assesses the profitability of basic operations, excluding items such as interest and taxes, among others.

During the call for results, Taiwan Semi executives said profits were hampered by the strength of the Taiwan dollar, which is, in small part, the result of the company’s own success as an exporter. A rising Taiwan dollar reduces the value of income earned abroad in terms of local currency.

The company’s earnings outlook hasn’t given investors much to cheer about, either. Executives said its third quarter gross margins are expected to be in a range with a midpoint of 50.5%, which was about 2 percentage points lower than Wall Street expected.

Executives said Thursday the company continues to pass cost increases on to its customers. Typically, the price of a chip decreases over time as manufacturers improve efficiency. But this year, Taiwan Semi hasn’t cut prices as usual, according to an executive at a chip company that does business with the subcontractor.

Taiwan Semi said third-quarter revenue is expected to increase by about 20% to between $ 14.6 billion and $ 14.9 billion. The midpoint of this range is slightly below the consensus estimate of $ 14.8 billion. (The company issued guidelines in US dollars.)

Executives did not tell investors about the company’s $ 30 billion capital spending plan for the year. New Street Research analyst Pierre Ferragu has predicted that Taiwan Semi will generate $ 10.1 billion in free cash flow this year. He said the company could take that figure to $ 30 billion and generate annual revenue of $ 100 billion beyond 2025.

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