TAIPEI -- Taiwan Semiconductor Manufacturing Co, the world's biggest contract chipmaker, is signalling the semiconductor slump is nearing its end despite predicting a decline in revenues for the second quarter.
"We believe we may have passed the bottom of cycle of our business," said CEO C.C. Wei, as he unveiled a 31% drop in net profits for the first three months of the year. "We are seeing customers' demand stabilizing. We also see customer's inventories will be substantially reduced...by about the middle of this year."
Wei said the market had begun to stabilize in the second quarter. TSMC expected demand for high-end smartphones, processors for computers, and 5G networking equipment to pick up from mid-2019.
The company, which counts China's Huawei Technologies and Apple of the U.S. as its biggest customers, is an industry bellwether and a barometer of global electronics demand. Its upbeat assessment will be welcome news to an industry that has seen revenues hit hard by two consecutive years of falling smartphone sales and inventory stockpiling.
The CEO said TSMC was being helped by the fact that some customers were gaining market share. China's Huawei Technologies has become one of the company's key growth drivers this year, countering the slowdown in the orders from the company's leading client Apple.
Market watchers said demand from Huawei's chip arm Hisilicon Technologies for processors and other chips to go into its own smartphones, telecom equipment, and servers had increased this year. The Chinese company last year narrowed the gap with market leaders Samsung and Apple and is expected to take over the number two smartphone maker position this year.
TSMC's revenue from China where Huawei is its top customer continues to advance, from 7% in 2014 to 17% in 2018. Sales from the U.S., the company's biggest market, is on a slight downward trend. Its revenue from China for the January-March period this year was 18%.
Meanwhile, since TSMC's smaller rival Globalfoundries announced plans to exit advanced chip manufacturing last year, it has won orders from Advanced Micro Devices, the second biggest PC central processing unit maker after Intel.
Intel has been suffering production strains that have left the industry short of central processing unit chips since the end of last year. As a result laptop makers have been shifting orders to AMD, which has also helped TSMC's business. Mobile chip giant Qualcomm, which just settled a year-long legal dispute with Apple over royalties, also increased orders for mobile processors and modem chips at TSMC.
For the current April-June quarter, the company forecast its revenue to be between $7.55 billion to $ 7.65 billion, just below market consensus. This is down by about 3% on a year ago.
TSMC is maintaining its forecast for the full year, reiterating that sales will grow slightly while the global semiconductor industry is expected to fall 3% on a year ago, according to the latest forecast by World Semiconductor Trade Statistics, one of the industry's best-known data providers. The maintained forecast suggests a recovery in the second half of 2018 for the Taiwanese chip titan.
"We see Huawei's orders at TSMC continue to rise around 30% this year so far, compared with last year... it could partly be because of the healthy demand of its smartphone sales and partially because the Chinese company hopes to secure chip supply first amid the Washington-Beijing trade tensions," said Mark Li, a veteran analyst at Bernstein Research. "Its revenue contribution to TSMC this year could rise from less than 10% to up to 12%." Apple accounted for 22% of TSMC's revenue for 2018.
Sean Yang, an analyst at market research company CINNO, said there was still a bit concern about the industry outlook for the second half of 2019.
"As the smartphone market is quite saturated, we are still not certain whether demand could pick up as expected after mid-2019," said Yang. "There are a lot of geopolitical uncertainties about the global economic outlook."
For the January-March period, TSMC saw net profit tumble more than 31% year on year to 61.39 billion New Taiwan dollars ($ 1.99 billion), due to the defective chemical problem at a production site in February, as well as a drop in electronics demand due to the global slowdown. The 11.8% decline in revenue to NT$218.7 billion was in line with its revised forecast of up to $7.1 billion.