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TSMC Expects Another Weak Quarter as Smartphone Woes Persist

Debby Wu and Gao Yuan
TSMC Expects Another Weak Quarter as Smartphone Woes Persist

(Bloomberg) -- Taiwan Semiconductor Manufacturing Co. is predicting another weak quarter for revenue growth, as the chipmaker to Apple Inc. and Huawei Technologies Co. grapples with global smartphone market malaise.

The world’s largest made-to-order chipmaker is predicting revenue of $7.55 billion to $7.65 billion in the June quarter, versus an average estimate for $7.6 billion and little changed from a year earlier. On Thursday, TSMC reported a larger-than-anticipated 32 percent plunge in net income during the January to March period.

TSMC is showing the strains of a plateauing smartphone market as Apple, its biggest customer, seeks to boost growth with services rather than hardware. That’s compounding the challenge of dealing with Chinese customers experiencing a slowdown and weaker demand ahead of new fifth-generation wireless networks. Global smartphone volumes are expected to drop 0.8 percent this year, according to research firm IDC.

Revenue should grow “slightly” over all of 2019 thanks to the typical launch of new smartphone models ahead of the holiday shopping season, Chief Executive Officer C. C. Wei said.

“There may be some upside from TSMC in the second half,” said Rick Hsu at Daiwa Securities. “After the conference, I am more confident about TSMC’s performance later this year.”

Net income fell to NT$61.4 billion ($2 billion) in the three months ended March, the Hsinchu, Taiwan-based company said. That compares with the NT$64.6 billion average analyst estimate. It previously disclosed sales in the first quarter of NT$218.7 billion.

The Taiwanese chipmaker’s output in the past quarter was affected by a chemical contamination incident that led the company to cut its guidance, just a few months after a virus disrupted production. For 2019, TSMC is sticking to its plan for $10 billion to $11 billion in capital spending.

“TSMC’s operating margin may have narrowed in 1Q as demand for semiconductor products weakened as trade tensions between China and the U.S. continued,” Simon Chan, an analyst at Bloomberg Intelligence, wrote in an April 11 note.

While the Taiwanese chipmaker is trying to diversify its revenue sources, it for now remains reliant on Apple for as much as a fifth of its business. TSMC will eventually move toward using renewable energy exclusively to produce all of its top customer’s products, Chief Financial Officer Lora Ho said.

It will work with government, including on legal issues, to help develop green energy thought it won’t build its own power plant, she added.

(Updates with analyst’s quote from the fourth paragraph.)

To contact the reporters on this story: Debby Wu in Taipei at dwu278@bloomberg.net;Gao Yuan in Beijing at ygao199@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Robert Fenner

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