The consumer electronics market for smartphones and laptops has 'hit bottom'

TSMC has just announced its third quarter 2023 profit report, reaching 211 billion New Taiwan dollars (TWD), equivalent to 6.69 billion USD. This is the largest profit drop recorded by the world's leading contract chip foundry since the first quarter of 2019.

Specifically, the Taiwanese company recorded total revenue of 546.73 billion TWD, surpassing analysts' forecast of 540.39 billion TWD. Of which, net income reached 211 billion TWD, higher than the estimate of 191.43 billion TWD.

Compared to a year ago, TSMC's revenue fell 10.83%, while net income fell 24.87%. However, the company's leadership remains optimistic about its business prospects, given its leadership in "3 nanometer (nm) technology" and strong demand for 5nm chips.

https3a2f2fcms image bucket production ap northeast 1 a7d2s3ap northeast 1amazonawscom2fimages2f92f32f92f72f46677939 3 eng gb2fcropped 1697186095ap23012574258735.jpg — TSMC recorded its sharpest quarterly profit decline in five years.

Despite the biggest profit drop in five years, the company said revenue for the past three months rose 13.7% from the previous quarter, when TSMC reported its first profit decline as demand for consumer electronics such as smartphones and laptops weakened following the Covid-19 pandemic.

Chip inventories at electronics makers are dwindling and demand for replenishment will soon return, analysts say.

“Given the persistently weaker overall macroeconomic conditions and slow demand recovery in China, customers remain cautious in managing inventory, and we expect this process to continue into the fourth quarter of 2023,” said CEO CC Wei. “However, we also see some early signs of stabilizing demand in the PC and smartphone markets.”

Has the market bottomed out?

Canalys data shows the global smartphone market fell just 1% in the three months to the third quarter, indicating a slowdown in the decline. In the second quarter, the market fell a sharp 11% year-on-year.

“Supported by regional recovery and demand for new product upgrades, the smartphone market recorded consecutive double-digit growth in the third quarter of 2023,” the market research firm said in a report.

Demand for AI chips has been fueled by the explosion of large language models like ChatGPT, helping to send TSMC's stock price up 19% year-to-date.

However, CEO Wei said AI is “not enough to offset” weakening demand for chips in consumer electronics. “Moving into the fourth quarter of 2023, AI-related demand will continue to be strong but not enough to offset the overall cyclicality of our business.”

TSMC expects fourth-quarter 2023 revenue to be between $18.8 billion and $19.6 billion. Last week, the U.S. Commerce Department extended TSMC’s exemption from trade sanctions against China, allowing the company to continue shipping advanced chip equipment to its mainland manufacturing facilities.

(According to CNBC)