TSMC shares tumble as margin concerns outweigh strong demand

(Bloomberg) — Shares of Taiwan Semiconductor Manufacturing Co. fell most in more than four months after gross margins disappointed investors who had been counting on the chipmaker to take advantage of the lingering chip shortage.

The stock fell 4.1% in Taipei trading on Friday, a four-day gain. Gross margin for the second quarter was 50%, lower than the average of about 51% that analysts had forecast, in part due to the appreciation of the Taiwan dollar over the period. For the September quarter, TSMC forecast a gross margin of 49.5% to 51.5%. Morgan Stanley analysts called the third-quarter outlook a “disappointment” and warned that gross margins could fall below 50% as early as next year.

TSMC, the world’s largest contract manufacturer, is under increasing pressure to increase capacity to alleviate a supply shortage plaguing auto and other industries. The Taiwanese company earlier this year pledged to spend $100 billion over three years to build new factories and invest in more advanced nodes, while rivals like Intel Corp. and Samsung Electronics Co. trying to catch up.

TSMC executives also revealed for the first time on Thursday that the chipmaker was weighing plans for a manufacturing plant in Japan. And Intel is investigating a deal to buy semiconductor manufacturer GlobalFoundries Inc. to take over, the Wall Street Journal reported, citing people familiar with the matter.

“We still believe that at some point in 2022 and 2023, TSMC’s gross margin will fall below 50% given the sharp rise in depreciation charges, while the company appears to be showing no pricing power,” wrote Morgan Stanley analysts. from Charlie Chan in a post-win note. “Or, just as stated, Moore’s Law is just getting too expensive, while TSMC will have to experience margin erosion to keep the chip scaling trend going.”

The disappointing margins overshadowed an increased sales forecast based on its pivotal role in easing a global chip crisis plaguing automakers and device manufacturers. TSMC said sales will rise more than 20% this year, up slightly from an earlier forecast of 20% growth in full-year sales. Revenue in the current quarter could rise to between $14.6 billion and $14.9 billion, in line with analysts’ estimates of $14.7 billion.

Some analysts said TSMC had failed to live up to its outrageous expectations. The results “exceeded our conservative estimates but lacked consensus” due to “excessive” expectations for gross margins, Needham wrote in a note Thursday.

Read More: TSMC Boosts Sales Prospects, Confirms Role of Global Chip Kingpin

(Updates stock performance in first and second chart)

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