Taiwan Semi Reports Disappointing March Revenues: A ‘Canary in Coal Mine?’

On April 10, Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), the world’s largest dedicated independent semiconductor foundry, reported that its March 2023 revenues were NT$145.1 billion, down 15.4% year-over-year from NT$172.0 billion in March 2022. 

A Taiwan New Dollar, NT$, is equivalent to one U.S. dollar.

Taiwan Semi counts as its customers most of the world’s leading chip designers, including Apple Inc. (NASDAQ: AAPL), Advanced Micro Devices, Inc. (NASDAQ: AMD), Broadcom (NASDAQ: AVGO), and NVIDIA Corporation (NASDAQ: NVDA). Indeed, Apple is the giant foundry’s biggest customer.

The breadth and Who’s Who-nature of Taiwan Semi’s client base means that Taiwan Semi’s revenue run rate serves as a window into the overall health of the technology sector, and by inference, the overall economy. With this as a backdrop, Taiwan Semi’s March 2023 revenues were disappointing. The year-over-year (YOY) decline in sales last month represented the first such negative reading since May 2019.

Even more important, Taiwan Semi’s monthly revenues have been rapidly decelerating since December 2022. The below figure shows both Taiwan Semi’s monthly sales since January 2019 and the YOY change in those revenues since January 2020. From September 2020 through November 2021, the giant foundry posted fairly consistent YOY revenue increases of 15% to 25%.

Then, from December 2021 and continuing through November 2022, demand for Taiwan Semi’s services spiked. The smallest YOY revenue jump during this period was 32%; the steepest was 65%.

However, demand seems to have declined quite precipitously beginning in December 2022 when Taiwan Semi’s revenue increased 24% YOY.  Three months later, in March 2023, the company’s sales were markedly negative versus the corresponding year-ago month. Alarmingly, based on the trend of the orange percentage change line in the graph, Taiwan Semi’s revenues do not look to be bottoming anytime soon.

The lesson from all this: some of the outsized movements in the technology sector so far in 2023, particularly among chip stocks, might have little basis in fundamentals. For example, the average semiconductor stock, as measured by the widely traded VanEck Semiconductor ETF (NASDAQ: SMH), is up 26% just since December 31, 2022. NVIDIA is up nearly 90%.

Investors may consider Taiwan Semi’s revenue performance over the last four months, and particularly in March, as a reason to pare exposure to the largest technology companies. It is possible that when the tech sector begins to report 1Q 2023 earnings and issues forward guidance, that guidance may prove disappointing — as foretold by Taiwan Semi’s revenue profile.  

Taiwan Semiconductor Manufacturing Company Limited last traded at US$89.02 on the NYSE.

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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