Taiwan Semiconductor Manufacturing, the world's largest contract chipmaker, on Thursday beat analyst estimates for the second quarter and gave a better-than-expected forecast for the current period. TSM stock rose on the news.
The chip foundry earned $1.55 per U.S. share on sales of $18.16 billion in the June quarter. Analysts polled by FactSet expected earnings of $1.44 a share on sales of $17.68 billion. On a year-over-year basis, Taiwan Semiconductor earnings increased 67% while sales advanced 36%.
The company, also known as TSMC, preannounced better-than-expected second-quarter revenue last Friday.
For the third quarter, Taiwan Semi predicted revenue of $19.8 billion to $20.6 billion. The midpoint of $20.2 billion is well above Wall Street's consensus estimate of $18.66 billion.
TSM Stock Climbs After Report
On the stock market today, TSM stock increased 2.9% to close at 83.67.
Taiwan Semiconductor makes cutting-edge chips for top fabless semiconductor firms such as Apple, AMD, Nvidia and Qualcomm.
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"Our second-quarter business was supported by HPC (high-performance computing), IoT (Internet of Things) and automotive-related demand," Chief Financial Officer Wendell Huang said in a news release.
He added, "Moving into third quarter 2022, we expect our business to be supported by continued demand for our industry-leading 5-nanometer and 7-nanometer technologies."
Circuit widths on chips are measured in nanometers, which are one-billionth of a meter.
In the second quarter, shipments of 5-nanometer chips accounted for 21% of TSMC's total wafer revenue and 7-nanometer chips accounted for 30%. Advanced technologies, defined as 7-nanometer and smaller designs, accounted for 51% of its total wafer revenue.
Inventory Correction Period Ahead
Despite the beat-and-raise report, TSMC gave some cautious commentary for late 2022 and early 2023.
TSMC predicted an inventory correction period for PC, smartphone and consumer electronics customers running from late 2022 through the first half of 2023. Those markets are seeing declining product sales.
"On the call, management offered what we consider optimistic realism about the business," Needham analyst Charles Shi said in a note to clients. "While expecting four-plus quarters of inventory correction for the industry, management thinks 2023 will still be a growth year for TSMC."
Shi reiterated his buy rating on TSM stock.
Meanwhile, Cowen analyst Krish Sankar cut his price target on TSM stock to 100 from 115 and kept his market perform rating.
In a report, Sankar said commentary on the upcoming inventory adjustments at mobile and PC customers overshadowed TSMC's positive earnings report.
Taiwan Semiconductor Has So-So Composite Rating
According to IBD Stock Checkup, TSM stock ranks No. 12 out of 31 stocks in IBD's semiconductor manufacturing industry group. TSM stock has an IBD Composite Rating of 63 out of 99.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
IBD's semiconductor manufacturing group ranks No. 153 out of 197 industry groups that IBD tracks. Semiconductor stocks have fallen on concerns that the chip cycle will soon turn negative.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
