A technician uses tweezers under a magnifying glass to install electronic chips. (Photographer: Goh Seng Chong/Bloomberg News)

Chipmakers' Rout Widens After TSMC Ignites Smartphone Fears

(Bloomberg) -- Asian technology stocks joined their peers in a global swoon after a disappointing sales outlook from Taiwan Semiconductor Manufacturing Co., Apple Inc.’s main chip supplier, rekindled concerns that the smartphone industry’s best days may be behind it.

TSMC fell 6 percent -- its biggest loss since July 2013 -- after predicting current-quarter sales about a billion dollars less than analysts had projected. It also reduced its forecast for semiconductor market growth, to 5 percent from a previous 5 to 7 percent. That followed a report by the International Monetary Fund this week saying smartphone shipments declined for the first time, a reminder that the industry may have peaked.

The Taiwanese company, an industry bellwether whose clients include Qualcomm Inc. and Nvidia Corp., triggered a selloff in chipmakers and tech stocks from Europe to Asia. As the main manufacturer of Apple’s processors, its tepid revenue forecast also revived fears that the iPhone X may already be losing momentum a quarter after its release. Apple slid almost 3 percent.

In Korea, Samsung Electronics Co. fell 2.2 percent while SK Hynix ended 4 percent lower. Shares of Japanese semiconductor equipment and silicon wafer makers, including Tokyo Electron Ltd. and Alps Electric Co., also fell. Their Chinese peers held up better, rallied strongly on hopes Beijing will prop up the industry as its relationship with Washington sours. Semiconductor Manufacturing International Corp., the largest of the Hong Kong-listed Chinese chipmakers, was largely unchanged in the afternoon.

“TSMC still seems to be relatively positive about cryptocurrency mining in the second half though it sees some weakness in the segment in the second quarter, so it appears that it is weakness in demand for iPhones that led to TSMC cutting its full-year forecast,” said Vincent Chen, head of regional research for Yuanta Securities Investment Consulting. “The global semiconductor rout came because TSMC not only trimmed its 2018 growth, but also slashed its forecast for the overall semiconductor market.”

Read more: TSMC’s Outlook Misses Estimates as Smartphone Market Falters

TSMC is the world’s foremost manufacturer of chips designed by other companies, and its earnings are a key indicator of demand given chipmakers and electronics manufacturers increasingly outsource costly production. The company produces the main semiconductor components of the iPhone and many of the world’s other best-selling smartphones. It get more than 20 percent of its revenue from Apple, according to data compiled by Bloomberg.

“TSMC’s exposure to the iPhone is high and today’s guidance proves that the company is just another victim of weak iPhone demand,” Mark Li, an analyst at Bernstein, said in a post-earnings note.

Tokyo Electron closed down 2.1 percent and Screen Holdings Co. 4.8 percent, while Hitachi High-Technologies Co. lost 3.6 percent of its value. Still, Masahiro Nakanomyo, an analyst at Jefferies in Tokyo, said TSMC’s increased spending plans should be positive for TSMC’s Japan-based suppliers in the long term. The Taiwanese company tacked on about half a billion dollars to its capital expenditure for 2018.

“Japanese semiconductor production equipment firms should see a rebound in orders from TSMC in the second half of 2018,” Nakanomyo wrote in a note.

While TSMC is getting more growth from new customers, such as those seeking powerful chips to mine digital currencies, it’s confronting a slowdown in demand from smartphone vendors as developed markets get saturated and replacement cycles lengthen. JPMorgan Chase & Co. analyst Gokul Hariharan estimates that, quarter on quarter, the company’s Apple-related revenues may plunge roughly 50 percent in the second quarter after a 30 percent drop in the first.

Chip and chip-equipment stocks beyond Asia had fallen Thursday on the TSMC news. Applied Materials Inc., which sells TSMC production machinery, fell as much as 7.2 percent. Broadcom Inc., another TSMC customer and a major supplier of phone parts, fell as much as 3.6 percent. European chip stocks also weakened, with Dialog Semiconductor PLC declining 4 percent and STMicroelectronics NV dropping 3.3 percent.

©2018 Bloomberg L.P.

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