TSMC’s August Revenue Isn’t Enough To Shift Expectations Says Analyst

The Taiwan Semiconductor Manufacturing Company's (TSMC) revenue for August was an encouraging development but it shouldn't be considered as a big turnaround in the firm's short term future prospects, according to Wedbush. TSMC reported its August revenue earlier this week, and the results showed a sizeable monthly growth. This growth is believed to come primarily from Apple and NVIDIA's orders, and it places TSMC in a comfortable position to achieve its third quarter revenue targets. The report comes as fears of China banning the iPhone for office use have created a bit of uncertainty in TSMC's share price and driven down the firm's market capitalization on the Taiwan Exchange from the NT$14 trillion level.

Analyst Urge Caution About Reading Too Much Into Apple & TSMC's Prospects After China's iPhone Ban Plan

2023 has proven to be quite a shock for TSMC's management as the firm had seen explosive growth over the past couple of years in the aftermath of the coronavirus pandemic. TSMC's customers grew their orders as the demand for technology products expanded; however, this growth also led to excessive product shipping into the market, leading to a glut that has sapped product demand from backend chip companies.

Therefore, TSMC's August sales, which marked a 6% growth over the July figures were a breath of fresh air as they marked the second consecutive month in sales growth. The fab's performance has varied considerably this year, with serious monthly drops. But, annually, revenue has dropped for most of the months this year as sales contracted and orders slowed down.

After the result, Wedbush's Matt Bryson cautioned that while the revenue results place TSMC on a solid path for the third quarter, there has been little "meaningful" change in the broader business environment that could provide for a surprise result for the third quarter.

A weak chip market gutted TSMC's free cash flow in the second quarter as the firm generated far less cash from selling its products. Image: TSMC

According to Bryson, technology companies that account for large portions of TSMC's orders have given subdued guidance for the second half of this, which naturally places a cap on the extent to which TSMC can grow its orders. The Taiwanese firm's earnings results for the second quarter were rather muted, as TSMC cut its annual revenue guidance for the second time in 2023 and cautioned that the chip sector's slowdown was worse than expected.

Therefore, Wedbush has not changed its expectations for the September quarter revenue based on the August results. The firm still has a Positive rating for the shares and an NT$650 share price target. TSMC's latest closing share price on the Taiwan stock exchange is NT$539, attributing a 20.5% upside to the stock. TSMC's shares are expected to benefit from a growth in artificial intelligence and electric vehicles over the long term, as growth in market adoption leads to more orders for the company.

TSMC's shares also slightly dropped in the stock market after news emerged of a Chinese ban of the iPhone from use in offices. However, analysts are cautioning against an excessive reaction to the news, with Evercore ISI reiterating an Outperform rating for the stock and sticking to a $210 share price target for Apple. The firm believes that government officials are already unlikely to use the iPhone, which limits the ban's impact on the Cupertino-based technology giant's Chinese revenue. Ives adds that the ban can affect roughly 50,000 iPhones sold, which is negligible for Apple, which sells millions of smartphones yearly.

Written by Ramish Zafar