TSMC Stock Rises on Earnings. It’s Good News for Intel and Other Chip Stocks.

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Taiwan Semiconductor Manufacturing lifted some of the gloom around the chip sector on Thursday with an earnings beat.

The world’s largest contract chip manufacturer also gave an upbeat outlook heading into 2024 which could be good for Intel (ticker: INTC) and other semiconductor makers. 

TSMC
(TSM) said that demand for the latest chip technology was helping to offset a glut of semiconductors caused by the fall in demand for consumer electronics. While third-quarter revenue fell 11% from a year earlier, it was up 14% from the preceding quarter.

TSMC dominates the market for high-end chips. It makes the main processors inside
Apple
(AAPL) iPhones,
Qualcomm
(QCOM) mobile chipsets, and processors made by
Advanced Micro Devices
(AMD).

TMSC said its third-quarter net profit came to 211.0 billion New Taiwan dollars ($6.51 billion), ahead of expectations of 190.94 billion New Taiwan dollars, according to a FactSet consensus.  Revenue in U.S. dollars came to $17.3 billion.  

For the fourth quarter, TSMC projected revenue would rise to a range of $18.8 billion to $19.6 billion,

“Moving into fourth quarter 2023, we expect our business to be supported by the continued strong ramp of our 3-nanometer technology, partially offset by customers’ continued inventory adjustment,” TSMC’s Chief Financial Officer Wendell Huang said in a statement.

American depositary receipts of TSMC are up 4.6% in Thursday trading. 

TSMC’s report was in line with better-than-expected results from chip-manufacturing rival
Samsung Electronics
(005930.Korea) earlier this month which suggested the worst of the inventory glut caused by the slowdown in PC and smartphone sales might be easing. 

The reports could bode well for their U.S. peer
Intel
(INTC), which will release its own earnings next Thursday after the close of markets. Intel shares were up 0.9% on Thursday.

TSMC is expected to benefit from the boom in artificial-intelligence technology but chips powering AI systems remain only a small part of its business, accounting for 6% of its revenue as of July this year.

“While AI-related demand continues to be strong, it is not enough to offset the overall cyclicality of our business,” TSMC CEO CC Wei said during the company’s earnings call.

TSMC said revenue from customers in North America made up 69% of the total revenue, up from 66% in the second quarter. The company is investing $40 billion into manufacturing sites in Arizona, which will supply chips to Apple from 2025.

TSMC said it expects its capital expenditure this year to be $32 billion, lower than the $36 billion it spent in 2022.

“Capex will be leveling off in the next few years. It may increase in absolute dollars… but the capex intensity of the business is expected to decline. The big investment was over the past several years and the company is now harvesting those investments,” said Ivana Delevska, chief investment officer of asset manager Spear Invest.

Write to Adam Clark at [email protected]

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