Taiwan Semiconductor Manufacturing Co. forecast quarterly revenue sharply below projections, underscoring the deepening slowdown in both iPhone sales and the global economy.
Apple Inc.’s main chipmaker foresees revenue of $7.3 billion to $7.4 billion this quarter, trailing the $8.1 billion average of analysts’ estimates. That marks the worst growth in at least a decade. It predicted a gross margin at least 2.5 percentage points below projections.
TSMC is showing the strains of the plateauing smartphone market as Apple, its biggest customer, slashed its sales outlook and other vendors grapple with weaker demand ahead of new fifth-generation wireless networks. While the Hsinchu, Taiwan-based company is counting on high-performance computing to drive future growth, it’s grappling with a slide in cryptocurrency chips and challenges surrounding another client, Huawei Technologies Co.
“There are few bright spots this year and 5G smartphones will only become more common next year,” said Mark Li, an analyst at Sanford C. Bernstein. “High performance computing will not be able to offset the smartphone slowdown.”
By dint of its enormous size and reach, TSMC is seen as a bellwether for the semiconductor industry. It trimmed the top of its forecast for capital spending by $1 billion and has now earmarked $10 billion to $11 billion, about level with last year. And the company said it has frozen all hiring till further notice, to be lifted only when macroeconomic conditions allow.
“I have just guided gross margin to decline by 3.7 percentage points,” Chief Financial Officer Lora Ho told an earnings briefing. “This is primarily attributed to lower utilization due to overall weakening macroeconomic environment and mobile product seasonality and high level of inventory in the supply chain.”
TSMC reported net income of NT$99.98 billion ($3.2 billion) in the three months ended December, just marginally higher than a year earlier. That compares with the NT$99.06 billion average of estimates compiled by Bloomberg. But gross margin of 47.7 percent trailed projections for 48.2 percent. It previously reported a 4.4 percent rise in fourth-quarter revenue to NT$289.8 billion.
Huawei, the Chinese smartphone and network gear maker, is TSMC’s second largest customer, according to data compiled by Bloomberg. The Shenzhen-based company faces accusations of breaching U.S. sanctions on Iran, allegations of spying and efforts by some Western countries to block it from 5G networks. The company has denied those accusations.
TSMC’s fortunes matter to global investors: it features on about 13 percent of the world’s active equity portfolios, according to the latest eVestment data. That makes it the most widely held stock in Asia and behind only Alibaba Group Holding Ltd. as the second most-owned emerging market company, the data show. Shares in the Taiwanese company closed at NT$220.50 on Thursday, down 2.2 percent since the beginning of the year.