Taiwan Semiconductor Tops Third-Quarter Earnings Target; TSM Stock Falls

Taiwan Semiconductor Manufacturing (TSM), the world’s leading chip foundry, on Thursday beat Wall Street’s targets for the third quarter and gave in-line guidance. The earnings report pushed TSM stock lower.




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Taiwan Semiconductor earned 90 cents per American depositary receipt on sales of $12.14 billion in the September quarter. Analysts expected the company to earn 81 cents a share on sales of $11.93 billion, according to S&P Global Market Intelligence. In the year-earlier period, it earned 62 cents per U.S. share on sales of $9.45 billion.

In local currency, Taiwan Semiconductor sales rose 14.7% from the second quarter and 21.6% from the year-earlier period.

“Our third-quarter business benefitted from the strong demand for our advanced technologies and specialty technology solutions, driven by 5G smartphones, HPC (high-performance computing) and IoT (Internet of Things) applications,” Chief Financial Officer Wendell Huang said in a news release.

5G Smartphones, High-Performance Computing Driving Sales

He added, “Moving into fourth-quarter 2020, we expect our sequential growth to be supported by strong demand for our industry-leading 5-nanometer technology, driven by 5G smartphone launches and HPC-related applications.”

In the third quarter, shipments of 5-nanometer chips accounted for 8% of total wafer revenue. Shipments of 7-nanometer chips accounted for 35% of revenue. Circuit widths on chips are measured in nanometers, which are one-billionth of a meter.

Taiwan Semiconductor is leading the race to make chips at smaller process nodes. Smaller circuits translate to faster, more power-efficient processors. Its customers include Apple (AAPL), Advanced Micro Devices (AMD), Nvidia (NVDA) and more.

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For the fourth quarter, Taiwan Semiconductor expects to generate revenue of $12.55 billion, based on the midpoint of its guidance. In the year-earlier period, it reported sales of $10.6 billion. That would translate to year-over-year sales growth of 18.4%.

TSM Stock Falls On Taiwan Semiconductor Earnings News

On the stock market today, TSM stock dipped 0.5% to 88.15. During the regular session Wednesday, ahead of the earnings report, TSM stock dropped 1.2% to 88.60.

On Sept. 15, TSM stock broke out of a five-week flat base at a buy point of 84.10, according to IBD MarketSmith charts. In intraday trading, it notched a then-record high of 86.79. However, TSM stock reversed the next day and soon flirted with a stop-loss sell rule. But it found support at its 50-day moving average line, a positive sign.

Last week, Taiwan Semiconductor stock returned to the 5% chase zone of its recent breakout. It’s now extended beyond that zone. TSM stock reached an all-time high of 91.27 on Monday.

Taiwan Semiconductor Outlook Tops Consensus Estimates

Wedbush Securities analyst Matt Bryson reiterated his outperform rating on TSM stock. He described the company’s third-quarter results as “strong” and its fourth-quarter guidance “robust.” Its revenue outlook topped consensus estimates.

“With foundry capacity likely remaining tight through Q4, and TSMC still in the midst of several favorable trends (5G transition in handsets, customer share gains in HPC, etc.) we see no reason to shift our positive stance,” Bryson said in a note to clients.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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