By Sherry Qin

Shares of Taiwan Semiconductor Manufacturing fell sharply as investors' worries about the chip maker's cautious outlook for the industry eclipsed its upbeat first-quarter financial results.

Shares of the world's largest contract chip maker fell as much as 7.2% early Friday and were last down 5.7% at 759 new Taiwan dollars (US$23.37), on track for its largest daily percentage decline since Oct. 2022. The dive in TSMC's shares, a heavyweight stock, drove Taiwan benchmark Taiex 3.5% lower.

TSMC reported better-than-expected first-quarter results on Thursday led by surging demand for advanced chips amid the global AI enthusiasm. TSMC's quarterly net profit rose 8.9% on the year, breaking a three-quarter declining streak.

However, the solid results were overshadowed by its industry outlook. It now expects semiconductor industry growth, excluding memory chips, at about 10% this year versus a growth projection of "more than 10%" three months ago. It has also trimmed the 2024 foundry industry growth outlook to a mid-to-high teen percentage from 20% projected earlier.

"Macroeconomic and geopolitical uncertainty persists, potentially weighing on consumer sentiment and end-market demand," said TSMC chief executive C.C. Wei at an earnings call.

The chip sector faced an industry-wide postpandemic inventory glut in 2023. While TSMC expects robust demand from the high-performance computing segment, which includes AI chips, and a mild recovery in the smartphone segment, the rest of the pack remains weak. The company had previously expected demand from the automotive sector to increase this year, but now expects a contraction, Wei said.

Analysts said the weaker guidance wasn't a surprise. Deutsche Bank analyst Robert Sanders said in a note that self-driving company Mobileye Global has already warned about an auto chip supply glut earlier this year.

"The chip recovery would prolong if excluding the AI contribution," Daiwa analysts Rick Hsu and Fion Chiu said in a research note.

The Daiwa analysts had previously called TSMC's more-than-10% growth outlook "a blue-sky scenario" and retained their forecast of 7% growth in 2024.

Despite the lower market guidance, TSMC maintains its revenue growth guidance of low- to mid-20% range in U.S. dollar terms.

"AI-related demand is very, very strong," TSMC's Wei said on the earnings call. While the company had done its best to ramp up capacity, "it's still not enough," he said.

Despite TSMC's lower sector growth projections, Citi analysts reckon the chip maker remains a long-term winner and could continue to outgrow the industry "thanks to its solid industry position particularly in advanced nodes and promising AI demand."

Write to Sherry Qin at

(END) Dow Jones Newswires

04-19-24 0030ET