TSMC Might Soon Be Free Of The Chip Demand Downturn

TSMC Might Soon Be Free Of The Chip Demand Downturn
Paul Allison, CFA

about 2 months ago2 mins

What’s going on here?

TSMC released results on Thursday that suggested the world’s biggest chipmaker may be about to free itself from the shackles of a demand downturn.

What does this mean?

The chip industry slump is taking no prisoners, and Taiwanese firm TSMC – which makes tiny slabs of silicon for basically every chip designer on the planet – has been well and truly confined. Gadget designers have been slowing production in the face of slowing demand, and that’s bad news for TSMC: the firm’s profit was down 25% last quarter from the same time last year. That’s the second quarter in a row where profit had dipped from the year before – a pattern TSMC hasn’t seen for four years. But get this: those results were actually better than analysts expected, and it’ll only help that TSMC suspects recovering Chinese demand could end the slump sometime soon.

TSMC results
Source: TSMC

Why should I care?

Zooming out: Chipmakers have a sixth sense.

Artificial intelligence has given Big Tech firms the strength to hoist indexes higher this year, so investors are probably hoping the sector can take the lead again next year. Chipmakers are important to watch, then, because often they’re the first to know when the climate’s changing, picking up on consumer demand and activity in a bunch of tech areas. So with both TSMC and chip equipment maker ASML saying the clouds might be parting, the broader industry – and in turn, the market as a whole – could be in for some milder weather.

TSMC stock
Source: Google Finance

The bigger picture: Big fish, big pond.

Only a few firms are capable of making the most advanced chips, so when chip designers have a job to send out, there’s a high chance TSMC will be on the receiving end. That means the chipmaker is a leader in the industry and all the trends that come with it, including artificial intelligence advancements. But those pros aren’t without cons: the industry’s volatile and heavily sensitive to geopolitical tensions between China and Taiwan.



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