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

Don't get too excited about Taiwan Semiconductor's stellar earnings and rather optimistic outlook for the coming quarter.

Revenue for the three months to Sept. 30 will be NT$254 billion to NT$257 billion ($7.9 billion to $8 billion), the world's biggest custom manufacturer of chips told investors Thursday, the midpoint of which is 2.16 percent higher than analyst estimates. The guidance comes after both sales and profit for the second quarter beat expectations.

While the sales forecast exceeded estimates for the first time in six quarters, the bump doesn't necessarily signal a return to the sustained growth that TSMC once enjoyed. Investors may do better to think of it as the last rays of sunshine before the dusk of another round of inventory corrections.

TSMC forecast sales above estimates after disappointing investors for six straight quarters
Source: Bloomberg

As a maker of chips for Apple, Qualcomm and MediaTek, TSMC has ridden the smartphone wave better than almost any other tech company. That also means it's highly exposed to the current downturn, and one quarter of strength can't shelter it from the fact that the only bright spot in the technology hardware market is also dimming.

One of the key reasons for TSMC's strong third quarter probably was its capture of orders for the core processor used in Apple's next iPhone -- previously dominated by or shared with Samsung -- which requires a fast increase in chip production ahead of the product's debut, likely in late September. While that's certainly a win for TSMC, the victory may be Pyrrhic: Apple is set for its first annual decline in iPhone shipments, and gaining control of those orders doesn't leave much room for upside.

Hanging Up
IPhone shipments are expected to decline this year amid a global slowdown for the overall smartphone market
Source: IDC, Bloomberg Intelligence

At the same time, TSMC has a commanding position in the market for chips used in Android smartphones, which tend to distribute orders more evenly through the year. Yet that business is also slowing. IDC forecasts anemic shipment growth across the entire smartphone market of just 3.1 percent this year. Elsewhere, the PC and consumer-electronics sectors remain weak, while the coming wave of wearable devices and connected cars has yet to provide the impetus needed to propel growth.

TSMC's shares reached a record earlier this week and now trade at 15 times earnings, the highest level in 15 months. Based on the tech market's current realities, that might be about as good as it gets.

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

To contact the editor responsible for this story:
Paul Sillitoe at