Taiwan Semiconductor 3Q Profit Up 45% Fueled By Chip Demand

Taiwan Semiconductor Manufacturing reported better-than-expected 3Q results mainly driven by solid demand for its chips used in smartphones, high-performance computing (HPC) and Internet of Things (IoT) solutions. Shares are down 2% in Thursday’s pre-market session.

Taiwan Semiconductor’s (TSM) 3Q EPS jumped 45.2% to $0.90 year-on-year and surpassed analysts’ expectations of $0.77. The company’s revenues of $12.14 billion also beat Street estimates of $11.51 billion and came well ahead of its previous guidance range of $11.2-$11.5 billion. Quarterly revenues also grew 29.2% on a year-over-year basis.

Buoyed by solid quarterly performance, Taiwan Semiconductor provided a strong 4Q revenue outlook which exceeded analysts’ expectations. For the quarter, the company forecasts revenue in the range of $12.4-$12.7 billion, while the Street estimate is pegged at $11.71 billion. (See TSM stock analysis on TipRanks).

TSM CFO Wendell Huang said, “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.”

Ahead of its earnings release, on October 12, Susquehanna analyst Mehdi Hosseini reiterated his Sell rating on the stock with a price target of $55 (37.9% downside potential). Hosseini is concerned about excessive inventory build out in the smartphone category business. Nonetheless, the analyst believes that “the excess smartphone inventory bubble won’t burst until after 2021 CNY (Chinese New Year) holidays.”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys versus 1 Sell. With shares up over 52% year-to-date, the average price target of $55 implies downside potential of 37.9% at current levels.

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