TSMC's Revenue Growth Cooled in October Amid Huawei Sanctions Hit

However, TSMC is maintaining its upbeat Q4 sales guidance.
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With new Huawei sanctions weighing, Taiwan Semiconductor’s  (TSM) - Get Report revenue growth slowed in October. But the chip manufacturing giant is still expecting a strong finish to the year.

In its latest monthly sales report, TSMC reported October revenue of NT$119.3 billion ($4.17 billion). That figure represents a 6.5% month-to-month decline, and a 12.5% annual increase.

For comparison, TSMC’s revenue was up 3.8% month-to-month and 24.9% annually in September.

Weighing on October sales: TSMC, like various other companies, was forced to stop supplying Huawei’s HiSilicon chip unit in mid-September, in order to comply with new U.S. sanctions that (among other things) prevent HiSilicon from having its chips manufactured by plants containing American equipment.

Given that it’s virtually impossible today for chips to be made using advanced manufacturing processes without U.S. equipment, the sanctions are a massive blow to HiSilicon, whose processors and modems have been designed into many of Huawei’s phones. As a result, Huawei/HiSilicon is believed to have been placing large orders with TSMC in the months before the sanctions took effect.

However, in spite of the revenue hit caused by the sanctions, TSMC guided in mid-October (via its Q3 report) for Q4 revenue to be up 29% to 33% annually, to a range of $12.4 billion to $12.7 billion. That in turn implies full-year revenue growth of about 30%.

The production ramp for Apple’s  (AAPL) - Get Report iPhone 12 line, as well as broader strength in mobile chip demand as 5G phone shipments surge, is set to boost TSMC’s top line in Q4. The company’s smartphone-related chip revenue accounted for 46% of its total Q3 revenue and its mobile chip clients include Apple, Qualcomm  (QCOM) - Get Report, MediaTek, Broadcom  (AVGO) - Get Report and Cirrus Logic  (CRUS) - Get Report.

TSMC is also benefiting from the sales growth currently being seen by clients such as AMD  (AMD) - Get Report and Nvidia  (NVDA) - Get Report, aided by strength within end-markets such as notebooks, game consoles and cloud servers. TSMC received 37% of its Q3 revenue from what it calls high-performance computing (HPC) products, with HPC sales rising 25% sequentially.

TSMC’s stock is down 0.6% in Tuesday trading to $88.46, amid a 0.7% drop for the Nasdaq. Shares are still up about 51% on the year.

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