TSMC, the world’s largest chipmaker, has announced a sharp decline in its second-quarter profits due to a continued slump in demand for consumer electronics. The company reported a 10% drop in revenue from a year ago, totaling NT$480.84 billion ($15.68 billion), while net income fell by 23.3% to NT$181.8 billion. These figures were slightly better than market expectations.
TSMC attributed the decline in its business to macroeconomic headwinds, which dampened the end-market demand and led to customer inventory adjustments. This marks the company’s first quarterly net income decline since the second quarter of 2019.
Looking ahead, TSMC has forecasted third-quarter revenue between $16.7 billion and $17.5 billion. Wendell Huang, the company’s CFO, expressed optimism about the strong ramp-up of their 3-nanometer technologies in the coming quarter, although it will be offset by customers’ continued inventory adjustments.
TSMC is a major supplier of chips for Apple’s iPhones, and it is rumored that Apple’s upcoming processor for the iPhone will be based on TSMC’s 3-nanometer process technology. As Apple typically releases its latest iPhone in September, it is expected to order chips from TSMC in the third quarter.
The company’s repeated warning about “inventory adjustment” is likely to have an ongoing impact on its revenue. TSMC is known for producing the world’s most advanced processors, including those found in iPhones, iPads, and Macs. However, the demand for consumer electronics has significantly declined post-pandemic.
During the COVID-19 lockdowns, there was a surge in global demand for laptops and smartphones, prompting manufacturers to stockpile chips. But as consumers now reduce purchases due to rising inflation, companies are grappling with excess inventories, leading to a fall in chip prices. In May, TSMC’s largest customer, Apple, reported a decline in overall sales for the second quarter in a row.
Despite the challenging circumstances, there are indications of a recovery in the smartphone market. According to a report by data insights provider Canalys, the global smartphone market plummeted by 11% in the second quarter compared to the previous year. However, Canalys also noted signs of recovery, as smartphone inventory began clearing up to make room for new launches.
While TSMC’s second-quarter results were in line with market expectations, the company will need to navigate ongoing challenges in the consumer electronics market and the impact of inventory adjustments on its future revenue.