TSMC Posts 2Q18 Earnings With Serious Sequential Revenue, Net Income Decrease

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Taiwanese fab TSMC (TPE:2330) has posted its earnings results for 2018's second quarter. TSMC's having a good time research-wise, as it took the lead from Samsung in next-generation 7nm chip manufacturing. However, this gain will not translate into immediate revenue, and for the quarter the company is reducing its forecasts for the next quarter. See below for more details.

TSMC Reports Net Revenue Of $7.85 Billion And Net Income Of NT$ 72.29 Billion Representing Yearly Growth Of 11.2% And 9.1%; Management Expects Upcoming Smartphone Shipments To Compensate For Slow Cryptocurrency Market

TSMC's had a solid yearly run, as the company posts strong growth in both revenue and net income. For 2018's second quarter, the company reported net revenue of $7.85 Billion (NT$ 233.28) and net income of NT$ 72.29 Billion. These are however some of the only positives that can be gleaned from the fab's latest earnings results.

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Sequentially, both revenue and net Income fell by 6% and 19.5% respectively. This fall reflects the slowing down of demand for chips that are capable of mining cryptocurrency. This hit also impacts TSMC's capital expenditures, which have dropped by approximately $500 Billion, as TSMC"s Capex for the quarter stood at NT$ 59.68 Billion for the quarter, a sharp decline when compared to NT$ 71.85 Billion in Q1 and even sharper when compared to NT$105.19 for 2Q17.

Additionally, decreasing inventory turnover and other factors have also led to a staggering increase in short-term loans. TSMC (TPE:2330) borrowed NT$ 27.97 Billion in Q2, which is massive compared to NT$ 5.78 Billion for 2Q18 and NT$ 40 million in 2Q17.

TSMC expects the smartphone industry which will include Apple's 2018 iPhone lineup to offset this sequential decrease. According to Lara Ho, SVP and Chief Financial Officer at TSMC:

“Our second quarter business was mainly impacted by the mobile product seasonality, while the continuing strong demand from cryptocurrency mining and a more favorable currency exchange rate moderated the mobile softness.  Moving into third quarter 2018, we anticipate our business will benefit from new product launches using TSMC 7-nanometer technology while cryptocurrency mining demand will decrease from second quarter."

Finally, TSMC (TPE:2330) also reduced its outlook for the third quarter as revenues from the smartphone industry are not expected to make an impact on its balance sheet until the fourth quarter. Looks like the fab's got a lot hedging on Apple. Cupertino's got three iPhones planned for the year and expects a 6.1" LCD iPhone 9 to carry the bulk of its sales. However, Apple too might be in trouble if the market perceives the iPhone 9 as a low-cost device.

TSMC's outlook for the quarter is as follows (based on an exchange rate of $1=NT$30.5.

  • Revenue is expected to be between US$8.45 billion and US$8.55 billion
  • Gross profit margin is expected to be between 48% and 50%.
  • Operating profit margin is expected to be between 36.5% and 38.5%.