The industry bellwether’s disappointing outlook spurs selloff
Investors fear the smartphone market’s best days are over
Asian technology stocks joined their peers in a global swoon after a disappointing sales outlook from Taiwan Semiconductor Manufacturing Co., Apple Inc.’s main chip supplier, rekindled concerns that the smartphone industry’s best days may be behind it.
“TSMC still seems to be relatively positive about cryptocurrency mining in the second half though it sees some weakness in the segment in the second quarter, so it appears that it is weakness in demand for iPhones that led to TSMC cutting its full-year forecast,” said Vincent Chen, head of regional research for Yuanta Securities Investment Consulting. “The global semiconductor rout came because TSMC not only trimmed its 2018 growth, but also slashed its forecast for the overall semiconductor market.”
TSMC is the world’s foremost manufacturer of chips designed by other companies, and its earnings are a key indicator of demand given chip makers and electronics manufacturers increasingly outsource costly production. The company produces the main semiconductor components of the iPhone and many of the world’s other best-selling smartphones. It gets more than 20 percent of its revenue from Apple, according to data compiled by Bloomberg.
“TSMC’s exposure to the iPhone is high and today’s guidance proves that the company is just another victim of weak iPhone demand,” Mark Li, an analyst at Bernstein, said in a post-earnings note.
Tokyo Electron closed down 2.1 percent and Screen Holdings Co. 4.8 percent, while Hitachi High-Technologies Co. lost 3.6 percent of its value. Still, Masahiro Nakanomyo, an analyst at Jefferies in Tokyo, said TSMC’s increased spending plans should be positive for TSMC’s Japan-based suppliers in the long term. The Taiwanese company tacked on about half a billion dollars to its capital expenditure for 2018.
“Japanese semiconductor production equipment firms should see a rebound in orders from TSMC in the second half of 2018,” Nakanomyo wrote in a note.
While TSMC is getting more growth from new customers, such as those seeking powerful chips to mine digital currencies, it’s confronting a slowdown in demand from smartphone vendors as developed markets get saturated and replacement cycles lengthen. JPMorgan Chase & Co. analyst Gokul Hariharan estimates that, quarter on quarter, the company’s Apple-related revenues may plunge roughly 50 percent in the second quarter after a 30 percent drop in the first.
Chip and chip-equipment stocks beyond Asia had fallen Thursday on the TSMC news. Applied Materials Inc., which sells TSMC production machinery, fell as much as 7.2 percent. Broadcom Inc., another TSMC customer and a major supplier of phone parts, fell as much as 3.6 percent. European chip stocks also weakened, with Dialog Semiconductor PLC declining 4 percent and STMicroelectronics NV dropping 3.3 percent.
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