TSMC's third-quarter net profit falls 7 percent on supply constraints, beats estimates

TAIPEI (Reuters) – Apple Inc supplier Taiwan Semiconductor Manufacturing Co Ltd (TSMC) on Thursday said supply-chain inventory constraints pulled down net profit in the third quarter, albeit by a lesser degree than analysts had estimated.

The world’s largest contract chipmaker also forecast revenue growth of about 10 percent in the fourth quarter when sales begin for Apple’s iPhone X, which is widely expected to carry TSMC-made chips.

Profit fell 7.1 percent to T$ 89.93 billion ($ 2.98 billion), in July-September, versus the T$ 88.19 billion average of 21 analyst estimates in a Thomson Reuters poll.

Revenue rose 1.5 percent to $ 8.32 billion, slightly above a forecast issued in July. It put fourth-quarter revenue at $ 9.1 billion to $ 9.2 billion.

“Even though demand was slightly dampened by supply chain inventory reduction, our customers’ third-quarter growth was largely healthy,” said co-Chief Executive Officer Mark Liu.

Apple’s recently launched iPhone 8 is proving less popular than predecessors and industry analysts are now awaiting the iPhone X shipping from Nov. 3.

TSMC raised this year’s capital spending forecast by 8 percent to $ 10.8 billion, mainly to accelerate capacity of 7nm chip manufacturing technology.

It expects 2017 revenue growth close to the high end of its 5 to 10 percent target.

Operating margin was 38.9 percent in the third quarter and will likely be 37 to 39 percent in the fourth, TSMC said.


TSMC acknowledged increasing competition from mainland China but said it was confident of meeting targets.

“In terms of a lot of fabs (fabrication plants) in mainland China, we don’t like it but we are very competitive. We’ll continue to compete of course and maintain our market share,” co-Chief Executive C.C. Wei said.

Chipmakers are riding a boom in demand for chips that power smartphones and computer servers, driving sharp gains in shares.

TSMC’s stock has jumped 68 percent this year, giving the firm a market value of T$ 6.16 trillion.

The chipmaker also said it expects global semiconductor growth of 16 percent in 2017.

The results come just days before TSMC celebrates its 30th anniversary and about a week before iPhone X pre-orders begin. They are also the first since Chairman Morris Chang – widely regarded as the father of Taiwan’s chip industry – said he would retire in June. He will be succeeded by Liu, leaving Wei as sole CEO.

Following his announcement in early October, Chang told Reuters that TSMC would increase capital spending by 5 to 10 percent over the next five years.

Shares of TSMC closed up 1.5 percent ahead of the earnings announcement.

Reporting by Jess Macy Yu; Editing by Anne Marie Roantree and Christopher Cushing