TSMC earnings preview: another strong quarter but with cloudy outlook

TSMC earnings date?

Taiwan Semiconductor Manufacturing Company(TSMC) will report its fourth-quarter earnings on January 12th, 2023. The upcoming report will cover the company’s financial performance from October to December 2022.

TSMC earnings expectation?

• Earnings

According to TSMC's official guideline released in October, the Taiwan Semiconductor manufacturer's fourth-quarter revenue is anticipated to be around US$ 19.9 billion and US$ 20.7 billion. Given TSMC's proven record of delivering the final result to the upside of expectation, Q4's revenue is likely to show an impressive 29% - 31% improvement from the same quarter last year and 2% - 5% from the previous quarter.

The gross margin for the final quarter of the year is forecast to be around 59.5% and 61.5%, a significant improvement from 52% in 2021, especially considering the heightened global-wide inflation pressure in the previous year.

Apart from the numbers, investors should also keep a sharp eye on the chipmaker's update on its technology development front. In the final days of 2022, TSMC announced that it had started mass production of the 3-nanometer (nm) chips, the most advanced chip in the world so far. TSMC estimates that 3nm technology will open the door to a US$1.5 trillion value market in five years with only a very few competitors.

• Outlook

However, as the world’s leading semiconductor producer, TSMC isn’t too optimistic about its outlook in the months ahead.

As Wendell Huang, Chief Financial Officer of TSMC, stressed in its Q3 report’s media release: “Moving into fourth quarter 2022, we expect our business to be flattish, as the end market demand weakens, and customers’ ongoing inventory adjustment is balanced by continued ramp-up for our industry-leading 5nm technologies.”

TSMC’s concerns are not groundless. In the early days of 2023, TSMC’s major competitor Samsung Electronics reported that its operating profit fell by 69% in the fourth quarter of 2022. The worst-than-expected drop is not only bad news for South Korea’s largest company but, more importantly, is a surging sign that the global economic slowdown has hindered the electronics demand earlier than anticipated.

Meanwhile, TSMC’s biggest customer, Apple, is widely anticipated to cut its production target in 2023 due to the subdued demand forecast for smartphones. Based on TSMC’s Q3 report, smartphone market contributed to 41% of TSMC’s revenue.

TSMC share price

Despite a V-shape rebound in the fourth quarter of the year to push up the price from its lowest level in two years, TSMC’s shares still lost more than 40% to the end of the year.

From a technical point of view, while the 38% rebound from the October low helped the price return to its 50 and 100-day moving average, it only marked a lower high in the daily chart. As such, it’s difficult to confirm for now that the bear view is ready to be discarded.

At the moment, the price is consolidating within the moving band of $75-$80 range. Only a break-out above the December high at $83 could open the sky to the upside. On the other hand, major support levels around $74 will stop the slide if the earnings result fails to meet the expectation.

TSMC summary

In summary, it’s not a realistic expectation to bet on the company to be immune to the industry-wide correction and economic downtrend. As such, the strong growth that TSMC has seen for the past two years could potentially come to a halt in 2023.

However, for TSMC’s long-term believers, it’s not hard to see that the company remains in a good position to not only survive in a hard time but also capture the new growth point with the most advanced and demanded technology in the world.