iPhone Off-Season in First Half, Reflecting Decreased Client Demand
Inventory Levels to Normalize in Second Half... Expecting Sharp Rebound
[Asia Economy Reporter Minji Lee] Although TSMC recorded better-than-expected results in the fourth quarter of last year, it is forecasted that the semiconductor winter will not be avoided in the first half of this year. Experts predict that performance will improve from the second half of the year, considering inventory levels and customer demand.
Looking at TSMC's stock price on the 15th, it points to 500 Taiwan dollars, up 10% since the beginning of the year. Despite concerns over a slowdown in the semiconductor industry causing the stock price to fall about 26% over the past year, the better-than-expected fourth-quarter results and the significantly lower-than-expected stock price appear to have attracted buying interest.
TSMC's fourth-quarter results showed revenue of $19.9 billion and operating profit of $10.4 billion. Compared to the previous quarter, revenue decreased by 2%, while operating profit increased by 2%. The operating profit met the lower end of the guidance previously provided by the company. Inventory days slightly increased to 93 days compared to the previous quarter, with continued demand slowdown in the final distribution market and inventory adjustments by major customers.
By business segment, revenue growth rates showed high-performance computing (HPC) increased by 10% quarter-on-quarter, while smartphones decreased by about 4%. The automotive segment declined by 10%. Total capital expenditure last year was $36.6 billion, and it is expected to decrease to $32?36 billion this year.
The revenue guidance for the first quarter of this year is estimated at $16.7?17.5 billion, a decrease of about 16?12% compared to the previous quarter. Operating profit is expected to be $6.9?7.6 billion, down 33?27% during the same period, falling short of the market expectation of $7.8 billion. With continued weak demand for PCs and smartphones and the off-season for iPhones, performance is expected to shrink.
Nam Dae-jong, a researcher at Ebest Investment & Securities, explained, “Typically, shipments peak out in the fourth quarter after the iPhone launch,” adding, “The order volume for parts from suppliers related to iPhone supply has decreased more sharply than expected.” In fact, Apple prepared to produce 90 million iPhones for parts suppliers in the fourth quarter of last year, but actual sales were around 70 million units.
Experts diagnose that sales contraction is inevitable due to demand slowdown and inventory issues. However, they expect growth to continue compared to the previous year starting in the second half. From the third quarter of this year, revenue related to the 3nm process, which began production in the fourth quarter of last year, is expected to be generated, and in the second half, expansion to the N3E process is anticipated, leading to performance improvement due to increased advanced process production.
Inventory is also expected to normalize earlier than anticipated. The company stated that semiconductor industry inventory will rapidly decrease during the first half and recover to a healthy level in the second half, noting that initial signs of demand stabilization are currently being observed. In particular, market distribution inventory peaked in the third quarter of last year and has been decreasing since the fourth quarter, suggesting a strong rebound in market demand in the second half.
Especially in the memory semiconductor sector, where production cuts and capital expenditure reductions are underway, flexible price increases are expected during the demand recovery period after distribution inventory normalization. Park Yu-ak, a researcher at Kiwoom Securities, said, “The problematic distribution inventory is normalizing earlier than expected, raising investors’ expectations for industry improvement,” and added, “It is appropriate to increase the semiconductor industry weighting at that time.”
Chae Min-sook, a researcher at Korea Investment & Securities, advised, “It is necessary to wait until it is confirmed that the demand from the boom period has been cleared,” adding, “Since 38% of total sales come from smartphone-oriented APs and there is a high dependence on Apple, the direction of set demand needs to be monitored.”
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