Shares of Taiwan Semiconductor Manufacturing Company (TSM), or ✃TSMC for short, fell more than 4% in early trading on Thursday♉ after reporting a drop in profit for the first time in four years amid a decline in demand for electronics. 

Taking a Hit From Macroeconomic Headwinds

TSMC reported net income of 181.8 billion New Taiwan dollars ($5.85 billion) for the second quarter, a 23.3% drop from the same period a year ago and the first decline for the Apple supplier since 2019 as sales for smartphones and other devices that use its chips declined.

"Our second quarter business was impacted by the overall global economic conditions, which dampened the end market demand, and led to customers' ongoing inventory adjustment," said TSMC CFO Wendell Huang in a statement.

Apple, TSMC’s biggest customer, reported its second consecutive drop in overall sales for its electronic devices in the quarter ending April 1, and blamed the “challenging macroeconomic environment.”

Apple wasn't alone. The global smartphone market declined 11% in the second quarter from a year ago, according to figures from research firm Canalys.

However, that trend could be starting to shift.

“The smartphone market is sending early signals of recovery after six consecutive quarters of decline since 2022,” wrote Le Xuan Chiew, an analyst at Canalys. “Smartphone inventory has begun to clear up as smartphone vendors prioritized cutting inventory of old models to make room for new launches."

Forecasts for the Third Quarter

TSMC expects revenue to come in between $16.7 billion and $17.5 billion in the third quarter, with gross profit margin between 51.5% and 53.5%.

“Moving into the third quarter 2023, we expect our business to be supported by the strong ramp of our 3-nanometer technologies, partially offset by customers’ continued inventory adjustment," Huang said.

Despite Thursday's decline, TSMC shares were up over 30% year-to-date.