Taiwan Semiconductor Mfg. Co. Ltd., (TSM - Get Report) the world's biggest contract chipmaker and a lead supplier for Apple Inc. (AAPL - Get Report) iPhones, posted modestly weaker second-quarter earnings but said a pick-up in 5G and smartphone demand would support the global chip sector over the second half of the year.
TSMC said profits for the three months ending in June fell 7.6% to T$66.77 billion ($2.15 billion) as the ongoing U.S.-China trade dispute rippled through global supply chains and the blacklisting of China's Huawei Technologies hit one of its key customers. However, CEO C.C. Wei said the group had "passed the bottom of the cycle of our business" and expects to see increasing demand over the second half of the year, particularly in the smartphone segment, the companies most important revenue driver.
TSMC said it sees third quarter revenues in the region of $9.1 billion to $9.2 billion, an 18% increase from the $7.75 billion it recorded over the three months ending in June, as well as a gross profit margin in the region of 46% to 48%. It also suggested 2019 capital expenditures would top the company's prior forecast of between $10 billion and $11 billion thanks in part to stronger-than-expected demand for 5G networking equipment.
"In the second quarter, our business continued to be impacted by the soft overall global economic condition; customer inventory management; and high-end mobile product seasonality. But we have also passed the bottom of the cycle of our business and began to see demand increases," said CFO Lora Ho. "Driven by new product launches of premium smartphones; the acceleration of 5G deployment; and the increasing adoption of our industry-leading 7-nanometer solutions by High Performance Computing applications, we expect our third quarter business to further improve."
TSMC's U.S.-listed shares were marked 2% higher at the start of trading Thursday to change hands at $42.50 each, a move that would extend the stock's year-to-date gain to around 15%.
The Taiwan-based tech group's second half outlook echoes a similarly bullish assessment yesterday from semiconductor supplier ASML Holding NV (ASML - Get Report) ,which posted stronger-than-expected second quarter earnings that suggest global chip demand is starting to recover after a near two-year slowdown.
ASML said it sees third quarter revenues rising to around €3 billion, with a gross margin of between 41% and 43% as customer demand for its extreme ultraviolet lithography systems, or EUV, machines, which design complex chips used by, sector titans such as Samsung Electronics (SSNLF) , Intel Corp. (INTC - Get Report) and TSMC and cost as much as €100 million each, increases.