Apr
Barrons Edition reports TSMC’s (ticker: TSM) March quarter results come in at about $16.7 billion, this is below the midpoint of its guidance range of $16.7 to $17.5 billion and the Wall Street consensus of $17.2 billion.
But beyond the aggregate numbers, the trajectory of the month-by-month sales is the most troubling. TSMC’s sales are decelerating rapidly. March’s revenue fell 15% year over year, compared with an 11% year-over-year gain in February and a 16% year-over-year rise in January.
For Wedbush analyst Matt Bryson, the slowdown signals a weaker beginning for the current quarter and could mean another disappointment versus estimates.
“The falloff in revenues in March is unusual as historically the final month of CQ1 [first calendar quarter] has typically been the strongest of the quarter for TSMC,” he wrote. “The extent of the slowdown, in our view, was surprising.”
In midday trading, TSMC’s American depositary shares were down by 2.7% to $87.85.
The company’s soft results are ominous because it means the overall semiconductor industry is suffering. TSMC is the world’s largest third-party foundry, dominating the market for high-end chips, including making the main processors inside Apple’s (AAPL) iPhones, the mobile chips by Qualcomm QCOM +0.89% (QCOM), and the computer processors from Advanced Micro Devices (AMD).
Get Financial Times and Barrons Combo Digital Subscription for $129
There is also other evidence that the outlook for computer sales is softening. On Sunday, according to research firm IDC, worldwide shipments of PCs fell 29% in the March quarter from a year earlier after a 28% year-over-year drop in the December quarter and a 15% year-over-year decline in the September quarter.
Wall Street analysts have been playing down the string of weak numbers in the hopes a chip cycle bottom is near. Historically, semiconductor stocks tend to rally for six to eight quarters once the worst financial quarter is reported said Barrons Edition.
In a similar vein, Micron MU +8.85% (MU) shares rallied on Monday after its main competitor Samsung Electronics said it plans to make “meaningful” cuts to chip production in response to a difficult sales environment. Investors and analysts have been anticipating a reduction in supply could help spark a financial recovery later this year.
Get Barron’s News Subscription for $89
But it may be different this time. Bad news may be bad news for investors. The main problem is the unprecedented pull forward in electronics and computer spending during the pandemic. Once a consumer or corporation has bought a PC, they don’t need to replace the device for years, meaning the unwind of this pandemic-era boom may take longer than other historical instances.
Buying ahead of a theoretical bottom may not work. Simply put, the chip industry may be facing an L-shaped bottom versus the typical V-shaped-bottom upturn.
With demand deterioration for semiconductors accelerating on the downside, risks are rising the bottom of the chip cycle may be farther away, and recovery may be less dramatic.
