TSMC: Follow the Numbers

While the chipmaker blamed the Taiwan earthquake for a poor quarter, its sales forecasts point to weakening demand.

It's been more than three years since TSMC missed net income estimates.

The chipmaker has been so good at managing expectations that investors have tended to forgive slowdowns and dips. Its Taipei-traded stock is trading near a record, up 24 percent since Sept. 30, despite net income falling in both the third and fourth quarters.

This time, it's different. TSMC blamed a February earthquake for lower sales and margins in the most recent period, having updated its guidance soon after the temblor struck in southern Taiwan.

Unhappy Surprise

TSMC posted its first net income miss in three years

Source: Bloomberg

Note: Graph charts reported net income against average of estimates compiled by Bloomberg

But not only did TSMC report a third straight quarter of declining profit, missing the average estimate by 1.5 percent, it forecast sales for this quarter as much as 6 percent lower than sell-side analysts had predicted.

The company's CFO and co-CEOs painted an upbeat picture for the current three months, pointing to strong growth in demand for clients' products, which include chips used in phones and other electronics. At the same time, TSMC warned of a temporary increase in its tax rate that will hurt net income.

Investors may be tempted to dismiss another poor quarter affected by one-off items. That would be a mistake.


Consecutive declines in net income have failed to halt the stock's advance to a record

Source: Bloomberg

Underlying the sales weakness are global macroeconomic headwinds that the company can't talk its way out of. Concerns over delivery of the chipmaker's latest technology may also be a factor. TSMC cut its full-year forecast for smartphones, PCs, tablets and consumer electronics markets. That signals reduced expectations for Apple, Nvidia, Qualcomm, Broadcom, Mediatek and a dozen other customers that drive its business.

Arguably, some of this is already priced in. After the recent rally, TSMC shares trade at a forward price-earnings multiple of 13.4 times, still broadly in line with the 12.6 multiple for Taiwan's Taiex Index. 

Investors need to pay heed to the numbers the company is presenting and not be seduced by the game it's talking.

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

    To contact the author of this story:
    Tim Culpan in Taipei at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Matthew Brooker at mbrooker1@bloomberg.net

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