Shares of tech giants Apple AAPL and Nvidia NVDA opened nearly 2% lower on Thursday after Taiwan Semiconductor Manufacturing TSM, a key chip partner for both companies, posted lower-than-expected revenue guidance for the second quarter.
Taiwan Semiconductor said Thursday its revenue for the June quarter will likely fall in the range of $7.8 billion to $7.9 billion, lagging our consensus estimate of $8.5 billion.
“Moving into second quarter 2018, continued weak demand from our mobile sector will negatively impact our business despite strength in cryptocurrency mining,” said CFO Lora Ho in a statement.
The company posted adjusted earnings of 59 cents per share for the first quarter, missing the Zacks Consensus Estimate by a penny. Meanwhile, Q1 revenue outpaced our consensus estimate and improved nearly 13% from the year-ago period to reach $8.5 billion.
TSMC is the largest semiconductor foundry company in the world and provides chips for major tech firms like Apple and Nvidia. The Hsinchu, Taiwan-based manufacturer holds a roughly 56% share of the global chip foundry market.
In a note to clients Thursday, Morgan Stanley analysts said that sluggish performance from Apple’s iPhone could be a key factor behind TSMC’s weak forecast.
“Smartphone semi weakness [is] the main reason for the revenue shortfall,” wrote the bank’s Charlie Chan. “Beside the order cuts from the current Apple iPhone X processor, we attribute the major revenue shortfall in the smartphone segment to key customer MediaTek... and around a month's delay of Apple's new 7nm processor to July.”
Shares of Taiwan Semiconductor dipped as much as $2.44, or 5.8%, in early morning trading. Apple and Nvidia were both down around 2% at the same time.
It will be interesting to see whether TSMC’s weak guidance has an impact on analyst sentiment for its chip partners. Nvidia—typically an analyst darling—has actually witnessed one negative revision to its full-year EPS estimates within the past month. That downward adjustment is the only recent revision the company has seen.
Still, consensus estimates for Nvidia’s full-year and next-year earnings are up significantly over the past quarter, and the trendy stock’s growth picture is still solid. Nvidia is currently expected to improve its bottom line at an annualized rate of 10.3% over the next three to five years. NVDA sports a Zacks Rank #3 (Hold) and an “A” grade for Growth in our Style Scores system.
Meanwhile, the analyst estimate revision trend for Apple has been troubling. The company has witnessed four adjustments to its current-year EPS estimates over the past 60 days, with 100% agreement to the downside. That activity has moved the Zacks Consensus Estimate for Apple’s annual earnings eight cents lower within the past two months. The iPhone maker is now sporting a Zacks Rank #4 (Sell).
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