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Largest Apple supplier experiences largest profit decline in half a decade

TSMC, the largest foundry in the world and a major supplier to Apple, reported a decline in profits for the third quarter. The company’s net income amounted to NT$211 billion ($6.69 billion), marking a 24.87% year-over-year decrease and the largest annual decline in five years. Additionally, revenue declined by 10.83% to NT$546.73 billion ($17.28 billion) compared to the previous year.

Despite these figures, TSMC outperformed Wall Street expectations of NT$540.39 billion in revenue and NT$191.43 billion in net income. As a result, TSMC’s shares on the New York Stock Exchange increased by 4.19% to $93.29.

During the second quarter, TSMC experienced a decline in profits for the first time in four years as consumer electronics purchases slowed down. This trend has been prevalent throughout the pandemic. However, analysts predict that the inventory restocking by smartphone manufacturers and other producers will lead to a rebound in the coming months.

Notably, TSMC’s deal with Apple might have influenced its Q3 financial performance. Usually, chip designers are responsible for the costs of defective chips produced by foundries. However, TSMC agreed to bear the costs of any defective chips manufactured using Apple’s A17 Pro SoC design, which was developed with a 3nm process node. This cost-saving measure for Apple potentially amounted to billions of dollars.

TSMC’s report emphasized the impact of its 3-nanometer and 5-nanometer technologies on its business. Despite customers’ ongoing inventory adjustments, the strong ramp-up of TSMC’s 3-nanometer technology and increased demand for 5-nanometer technologies supported its operations. In the upcoming year, TSMC plans to utilize its second-generation 3nm node (N3E) to produce cutting-edge chips for multiple customers. However, Apple currently reserves all of TSMC’s manufacturing capacity at that specific node (N3B). The decision by Apple to allocate this capacity to TSMC was likely influenced by TSMC’s commitment to shoulder the costs of low-yield productions.

TSMC CEO C.C. Wei acknowledged the challenging macroeconomic conditions and slow demand recovery in China, which led to customers being cautious with inventory control. He also noted early signs of demand stabilization in the PC and smartphone market. However, TSMC expects inventory digestion to continue in the fourth quarter.

Overall, TSMC’s Q3 financials reflect the impact of global economic conditions and the influence of its partnership with Apple. Despite the decline in profits, TSMC remains optimistic about future demand.

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