TSMC, Despite Record-Breaking Earnings, Stock Price Remains 'Unstable'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] As TSMC records unprecedented profitability, analysts predict that this trend will continue into the fourth quarter. Securities experts express concerns over the U.S.'s strengthened export control measures against China, but when looking at the stock price, the valuation is considered to be at a historically low point.

On the 16th, TSMC's stock price stood at 412 Taiwan dollars, marking an 11.8% decline over the past month. Although there was a slight upward trend following the third-quarter earnings announcement, a broader view shows that weak IT demand and U.S. export control measures against China have dragged the stock price down.

TSMC posted third-quarter revenue of 613.1 billion Taiwan dollars, a 47.9% increase year-over-year. Operating profit rose 45.9% to 310.3 billion Taiwan dollars, surpassing market expectations. Adjusted EPS (earnings per share) was 10.83 Taiwan dollars, exceeding market estimates by 5.7%. The gross profit margin increased by 1.4 percentage points from the previous quarter to 60.4%, significantly surpassing the market expectation of 58.7% due to the reflection of exchange rate effects.

The performance was driven by the smartphone segment, which grew 25% quarter-over-quarter. Despite demand concerns, HPC revenue grew by 4%, and the share of 5nm process increased from 21% to 28%, with the average selling price (ASP) rising by more than 5% during the same period. Seung-yeon Seo, a researcher at Shin Young Securities, said, “Strong demand for the 5nm process, favorable exchange rate effects, and cost reductions contributed to record-breaking results,” adding, “Inventory days decreased by 5 days from the previous quarter to 90 days due to increased wafer shipments.”

TSMC provided fourth-quarter revenue guidance at a midpoint of 639.5 billion Taiwan dollars, exceeding market expectations by 4%. This estimate reflects strong demand for the 5nm process in smartphones and HPC. Junho Moon, a researcher at Samsung Securities, explained, “Although PC and smartphone demand continues to deteriorate, causing a decline in 7nm utilization rates, demand from data centers and automotive sectors remains solid, offsetting this. The company mentioned that customers’ inventory adjustments will continue, and the cycle inflection point could be in the second half of next year.” The gross profit margin guidance was set between 59.5% and 61.5%, higher than the market expectation of 58.2%, considering the effect of a strong dollar.

Capital expenditure was revised downward from the previous range of 40 to 44 billion USD to 36 billion USD. This adjustment reflects production optimization considering N7 and N6 processes and ongoing logistics difficulties. Approximately 70-80% of the investment will be allocated to advanced processes, and no separate capital expenditure plan was provided for next year.

The ability to maintain differentiated performance based on pricing power enhances the investment appeal. Researcher Junho Moon said, “A short-term stock price rebound is unlikely, but the expectation for a relative stock price increase remains valid,” adding, “Currently, the company’s valuation shows a 12-month forward price-to-earnings ratio (PER) trading at 10 to 11 times, which is at a 20-year historical low.”

However, the trade dispute between the U.S. and China over semiconductors remains a concern. The company stated that it will not be negatively affected in the short term and that it is difficult to assess the medium- to long-term impact on the industry as a whole. Nevertheless, some experts believe that plans to expand sales targeting China may face setbacks. Minsook Chae, a researcher at Korea Investment & Securities, analyzed, “The U.S. has strengthened export control measures against China, imposing regulations not only on previously announced products but also on technology and equipment,” adding, “Although a license has been obtained to import U.S.-made equipment to the Nanjing fab in China for the next year, this will have a long-term impact on sales.”

This content was produced with the assistance of AI translation services.