Taiwan Semiconductor Manufacturing Co., the world’s biggest contract chipmaker, said its profit surged over 76% to a record level in the April to June quarter. Analysts, however, warn that soaring inflation and a raft of other global economic woes could taint the outlook for the company and its rivals.
TSMC on Thursday said its net profit for the period climbed 76.4% from the year before to TWD 237.03 billion (USD 8.05 billion), while revenue jumped 43.5% to TWD 534.14 billion. Its gross margin also reached a record of 59.1%. The strong results were bolstered by the company hiking prices due to a massive supply chain crunch driven by the COVID-19 pandemic.
The company supplies nearly all the world’s major chipmakers, from Apple and Qualcomm to Nvidia and Broadcom. Its earnings are often seen as a barometer for demand in the broader electronics sector.
But the latest earnings come amid growing worries over the fate of the world’s economy. Data on Wednesday showed U.S. inflation reached a 40-year-high of 9.1% in June, while fears over a possible recession are mounting.
Despite the economic headwinds, TSMC in June forecast that its revenue for the entire year would rise by as much as 30%. But it acknowledged a slowdown in consumer electronics such as smartphones, TVs, and personal computers. At the time, chairman Mark Liu said the chipmaker was closely monitoring the impact of inflation on end-market demand. The company’s revenue grew 39.6% year-on-year in the first half of 2022.
The Taiwanese chip titan is also spending big to expand overseas, building new plants in the U.S. and Japan, as well as at home. It previously touted a capital spending budget for this year of up to USD 44 billion.
Several big chipmakers, including Micron and Intel, have warned of a gloomy economic outlook for the second half of the year. The unprecedented semiconductor crunch, which boosted chipmakers’ earnings last year, has eased. Samsung, the world’s biggest smartphone and TV maker, has even asked its suppliers to hold on to component shipments as it reviews its inventories, Nikkei Asia reported previously.
In line with its peers, TSMC’s shares have dropped over 23% so far this year.
“The global semiconductor industry is seeing rising inventory levels against the background of weaker end-demand expectations,” said Kristine Lau, an analyst at investment research company Third Bridge. “Cuts to orders and demand forecast reductions are becoming more widespread.”
Lau added that TSMC is not immune to these concerns but noted that it continues “to be robustly positioned due to revenue concentration in leading-edge nodes and a diverse customer base.”
Mark Li, a semiconductor analyst at researcher Sanford C. Bernstein, said that should the worst-case scenario of a global financial crisis unfold, it would inevitably hit TSMC. “If something that bad happens, TSMC will have to react with rapid capital expenditure and operating expenses controls. But TSMC leads in technology and will rebound once the economy recovers, and there is no question [as] to its survival.”