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TSMC's Outlook Isn’t the News You Were Hoping For

Tim Culpan
·3 min read

(Bloomberg Opinion) -- Taiwan Semiconductor Manufacturing Co. just posted net income that beat estimates, showed fatter margins, and forecast revenue surpassing expectations. Pretty impressive in a world where the Covid-19 pandemic is hitting economies and industries from all sides.

But that’s the end of the good news. The maker of chips for Apple Inc., Qualcomm Inc., Huawei Technologies Co., and almost everyone else, also provided a series of bullet points to investors that should make the whole sector worry.

Let’s compare the outlook from three months ago to what the company told investors Thursday afternoon.

Then: Global semiconductor industry would climb 8%.(1) Now: “Flat to a slight decline.” Then: The made-to-order foundry industry, which acts as a proxy for chip designers, would climb 17%. Now: Possibly half that, in the order of “high single digit to low teens” percentage. Then: TSMC’s own growth would rise more than 20%.(2) Now: “Mid-high teen” growth.

An important caveat to this revised outlook, which might be considered rosy given current uncertainties, is that it’s based on the pandemic stabilizing in June. Let’s hope we’re that lucky. Even in some places that have shown success in battling the disease, such as Singapore and South Korea, new cases continue to mount. Outbreaks could recur until a vaccine is found and widely deployed.

Economically, many companies continue to believe things are better than they really are. In China, for example, some executives in the tech sector seem to think that they’re immune from the financial malaise that’s playing out in the rest of the world. It will catch up with them.

TSMC hasn’t abandoned all hope, at least in the long term. It maintained its previous guidance for capital expenditure this year of as much as $16 billion, based on the belief that industry trends like the rollout of 5G networks and handsets in coming years will still justify its investment in new equipment.

Much of this view comes down to an educated guess. But TSMC’s extensive client list and years of experience riding economic cycles make its predictive power better than almost anyone else.

ASML Holding NV, a TSMC supplier and one of the world’s biggest makers of chip equipment, didn’t even dare Wednesday to predict what its revenue might be this quarter or year. Halfway through last quarter, Apple threw out its previous guidance and didn’t take a shot at a new one.

Chief Executive Officer C.C. Wei made clear that the new outlook was based on TSMC’s own read of the end-market for devices, not on any indication that its semiconductor clients were cutting orders. That’s an oblique way of saying that customers haven’t reduced purchases yet, but they probably will.

The task now is for global technology companies such as Apple, Qualcomm, Nvidia Corp., Xiaomi Corp. and Huawei to adjust to the new reality. Some haven’t: Xiaomi last month predicted that smartphones are a necessity and demand would rebound quickly.

Heading into earnings season, investors ought to examine how executives handle this crisis through the same lens that we assess political leadership.

As with the epidemic itself, those who are the quickest to face reality and work to mitigate the impact will stand the best chance of getting through it unscathed. The deniers may not be so fortunate.

(1) This figure excludes the memory-chip sector, which is calculated separately.

(2) TSMC had forecast "several percentage points" higher then the foundry sector.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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