The world’s largest contract chipmaker, Taiwan-based TSMC, reported a 42% rise in first-quarter revenue from the previous year. But the company’s chief financial officer, Wendell Huang, said in a statement on April 16 that the company expects “flattish” revenue this quarter. Huang noted “weaker” mobile product demand, likely a result of the drop in global demand due to the coronavirus pandemic.
Investors aren’t used to seeing words like “flattish” and “weaker” to describe TSMC. They regard the Taiwanese chip giant as a well-managed bellwether for the global semiconductor industry and consumer electronics overall. The tech field normally keeps expanding with the next best thing, whether mobile phones or connected devices and computers that mine cryptocurrency.
Now, analysts are reviewing forecasts for TSMC’s share price fluctuation, though not quite predicting a plunge.
“I believe TSMC’s share price may be under pressure to drop more,” says Peter Chan, a technology research director at CIMB Investment Bank who follows the company. “I believe most of my clients see less upside for this stock at this moment, though some still own the stock.” Because of the COVID-19 impacts, he adds, “we should see more downward revisions of forecast industry-wide, and TSMC won’t be immune from these.”
TSMC expects second-quarter revenue to land between $10.1 billion and $10.4 billion, Huang said in the statement. First-quarter revenue reached $10.31 billion. Products for high-performance computing would offset losses from mobile device orders, Huang adds.
Sagging demand for electronics will merge with other pressures against stock prices, analysts believe. In Taiwan, investors can’t overweight TSMC because they’re required by law to diversify across companies, says Yao Tse-yong, a former buy-side analyst who follows TSMC. “Local Taiwan investors tend to be more cautious given the stock was at record highs,” Yao says.
Taiwanese life insurers and “value players” who bought cheap might hold shares for the dividend, Chan says, while “growth players” such as hedge funds won’t want them. TSMC will find less “low-hanging fruit” now as before and competitors such as Samsung are strengthening, he adds. “It’s a well-managed company, but any greatest thing on the planet still has a fair sticker price,” Chan says.
Any damage from COVID-19 probably won’t undermine TSMC’s overall technological edges in producing chips for tiny, advanced devices, company followers say. “What I would say in general regarding longer-term themes is that they are doing very well from a technology perspective,” Yao says. “Global investors I sensed were more positive on TSMC as valuation and the long-term story—tech lead—were quite attractive.”