TSMC Raises Sales Outlook Despite Fears Around Global Demand

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(Bloomberg) — Taiwan Semiconductor Manufacturing Co. raised its sales outlook for the year after quarterly earnings jumped 45%, helped by solid demand for chips used in everything from smartphones to cars.

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Annual revenue in dollar terms will top the previous outlook for as much as 20%-plus growth, the world’s biggest contract manufacturer of chips said Thursday. Sales will rise to $17.6 billion to $18.2 billion in the quarter through June, it said, implying growth of more than 30%. Analysts were estimating $16.9 billion on average, according to data compiled by Bloomberg.

The company also predicted wider earnings margins, signaling sustained demand for mobile phones, smart televisions and other gadgets from makers such as Apple Inc. and Samsung Electronics Co. even as consumers exit pandemic-era work-from-home arrangements. Meanwhile a chip shortage is yet to ease — the wait times for semiconductor delivery grew again in March due to China’s Covid lockdowns and a Japan earthquake that hit production, according to research by Susquehanna Financial Group.

The forecasts alleviate concerns that the war in Ukraine and Chinese lockdowns that are hampering the world’s biggest market for chips are hitting demand for gadgets.

TSMC to Spend at Least $40 Billion to Address Chip Shortage

Strong vehicle sales are set to help drive growth this year too — TSMC Chief Executive Officer C.C. Wei said on a conference call that demand for microcontrollers, essential components for cars, remains strong. Automakers are still struggling to secure enough semiconductors, with Stellantis NV saying this week that chip shortages remain at the same level as last year.

Gross margin, or what’s left of sales after production costs are deducted, will expand to 56% to 58% this quarter from 55.6% in the first quarter, TSMC predicted. That’s the widest in at least a decade.

Net income rose to NT$202.7 billion ($7 billion) in the three months through March, topping the NT$186.1 billion analysts estimated on average. Revenue jumped 36% to a record NT$491.1 billion based on previously reported numbers.

TSMC has kept production running in China, even as many other factories suspended operations to cope with the local pandemic policy. The chipmaker said in end-March that it will rearrange production priorities to deal with a shift in demand caused by Covid restrictions in China.

What Bloomberg Intelligence Says:

TSMC’s inventory strategy on key materials such as silicon wafers and industrial gases will be a key focus at the 1Q results briefing, as rising geopolitical tension and slow global wafer capacity gains keep the supply picture foggy.

– Charles Shum, analyst

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The company reiterated that it’s earmarked $40 billion to $44 billion this year to expand and upgrade its facilities — a record outlay intended to keep the company at the forefront of a rapidly evolving technology and sating future demand. But analysts including Credit Suisse’s Randy Abrams warn that semiconductor sector growth could slow in the second half as higher interest rates, China’s covid policies and rising commodity prices sap spending on consumer electronics.

Shares of TSMC have lost about 7% this year, dragged down by a broader decline in global technology stocks and China’s lockdowns which have weighed on consumer demand and affected supply chains. The stock was little changed ahead of the company’s report, which was published after market close.

(Updates with comment from CEO in fifth paragraph)

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