Taiwan Semiconductor Mfg. Co. Ltd., (TSM) - Get Report the world's biggest contract chipmaker and a leader supplier for Apple Inc. (AAPL) - Get Report iPhones, posted a modest decline in third quarter profits Thursday, but offered a cautiously optimistic outlook for the sector over the near-term and said the U.S.-China trade war would have only a "minimal" impact on its global business.
TSMC said net profit for the three months ending in September fell 0.9% to T$89.07 billion ($2.9 billion), as revenues rose 1.9% to $8.5 billion and both figures came in largely on par with analysts' forecast. The group's fourth-quarter outlook, however, was modestly softer, with fourth quarter revenues projections of between $9.35 million and $9.45 million over the key holiday season, which usually sees a big uptick in iPhone sales from TSMC's biggest and most important customer.
"Moving into fourth quarter 2018, we anticipate our business will continue to benefit from the strong demand for our 7-nanometer technology," said CFO Lora Ho.
TSMC shares closed at $236.50 each in Taiwan Thursday after falling 0.8% prior to the earnings release, a move that trims its year-to-date advance to just 3.05%.
Ho said fourth quarter margins would likely remain flat to the third quarter over the final three months of the year at between 47% and 49%, but capex would likely climb to as high as $12 billion next year amid predictions that the global 'ex-memory' semiconductor market grows between 5% and 7% over the course of 2018.
ASML NV (ASML) - Get Report , which makes €100 million 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, forecast stronger-than-expected fourth quarter sales and topped analysts forecast for third quarter earnings yesterday in what could mark a late cycle rebound for the beaten-down sector.
However, global smartphone demand, a key benchmark for chip demand, has been fading over the second half of the year as customers resist handset upgrades and await the rollout of faster 5-G networks in 2019 and 2020.
China demand, as well, is also being affected by a slowdown in the world's second largest economy and the ongoing trade war between Washington and Beijing.
"There are multiple signs of rapidly slowing consumer demand in China which we believe could easily affect Apple's demand there this fall," Goldman Sachs analysts said in a recent client note, which held to its forecasts of 80 million in iPhone shipments over the three months ending in December. "Should weak consumer demand persist and impact the higher end of the market Apple's potential to beat and raise in FQ4'18 earnings is likely reduced."