Bouncing Back from Chipageddon: TSMC Analyst Envisions Recovery after Uneven Q1 Performance

Needham analyst Charles Shi reiterates a Buy rating on Taiwan Semiconductor Manufacturing Company Ltd TSM with a price target of $110.00.

TSMC on Thursday reported a modest year-over-year growth in first-quarter revenue amid falling contributions from most of its end markets.

Net sales climbed 3.6% year-over-year but were down 18.7% quarter-over-quarter to $16.72 billion, missing the consensus of $16.81 billion. 

TSMC reported earnings per share of $1.31 per ADR, up 2.1% Y/Y and down 30% Q/Q, above the consensus of $1.20 due to its cost control measures.

Also, only 90nm, 65nm, and 28nm revenues did not fall sequentially in 1Q23, likely due to automotive that leverages those nodes being the only bright spot at the moment.

The lower-than-expected 2Q23 revenue guidance reflects higher-than-expected inventory and weaker-than-expected recovery from China reopening.

TSMC reduced its 2023 semiconductor industry and foundry industry outlook. Interestingly, TSMC no longer expects the foundry industry to outperform the non-memory semiconductor industry.

TSMC expects weakness in end-market demand to extend into 3Q23. However, management believes that TSMC is passing through the bottom of this cycle in 2Q23, which may be more profound than expected, but the timing has not changed.

TSMC expects the contribution of packaging revenue to fall, suggesting that packaging revenue will likely fall faster than wafer revenue this year.

Besides the N3 ramp and overseas expansions, higher utility costs further pressure TSMC's gross margin this year.

TSMC reiterated the 2023 full-year CapEx despite the near-term demand softness. Understandably, TSMC's CapEx plan reflects a multi-year demand outlook, not the near-term dynamics.

TSMC's Kaohsiung fab adjustment for a second time for 28nm technology likely reflects weaker demand and new capacity buildup in Japan and Europe.

The analyst notes note that the roadmaps of TSMC, Samsung Electronics Co, Ltd SSNLF, and Intel Corp INTC look very similar to each other, and no company has a lead in the timing of new node introduction through 2025, at least on paper.

Price Action: TSM shares closed higher by 2.37% at $89.30 on the last check Thursday.