TSMC shows fresh signs of recovery despite profit dive

TSMC, the world's most advanced chip maker, has reported a 25% fall in third-quarter earnings, but the ICT sector and investors will take heart from the further signs of a recovery. 

The chip market leader's net profit of 211 billion New Taiwan dollars (US$17.3 billion) and revenue of NT$546.7 billion were ahead of the weighted forecast of $195.5 billion from LSEG SmartEstimate.

Revenue was down 10.8% over last year but was 13.7% higher than in the second quarter. TSMC's guidance of $32 billion capex for the fourth quarter, while at the lower end of the range, was higher than analysts' forecast of $30.5 billion.

CEO C.C. Wei told an earnings call that the company saw early signs of demand stabilization in its two biggest segments, smartphone and PC. 

Sales of smartphone chips grew 33% over the second quarter, with IoT sales up 24%.

"We want to say that 2024 will have very healthy growth," Wei said. However, it was too early to call a rebound, although the market was "very close" to the bottom, he said. 

First sales of 3nm

The result is the first to include sales from the new 3nm technology, contributing 6% of total revenue.  The 5nm and 7nm were the biggest segments, accounting for 37% and 16% of total sales respectively.

CFO Wendell Huang said the third-quarter result was driven by "the strong ramp of our industry-leading 3nm technology and higher demand for 5nm  technologies," while partially offset by customers' inventory adjustments.

He said continued 3nm demand would drive the fourth-quarter result, although would still be impacted by inventory adjustments. 

TSMC's stock on the Taiwan exchange closed 1.1% Thursday.

Its more positive outlook follows Samsung Electronics' improved third-quarter guidance last week. Despite forecast falls in sales and profit, it was also seen as a sign of recovering demand, helping send its stock 5% higher.

Chip industry organization Semi has also forecast a rebound next year. It says the industry recovery began earlier this year after bottoming out in the first half of 2023.