TSMC stock slumps after posting profit drop

Taiwan Semiconductor shares fell after the chipmaker reported its first profit decline in four years, citing slowing demand. Yahoo Finance Live breaks down the numbers.

Video Transcript

DIANE KING HALL: Shares of Taiwan Semiconductor, that's TSMC, they're down this morning. Down a little over 4% after profit fell 10% from a year ago. Now this is the world's largest chip maker's first drop in profit in four years. So you saw this slump in demand for electronic devices that dinged the company.

We know that it makes these processors in iPhones. It does some AMD processing stuff. You also note-- I want to note rather that this knock that you're seeing on its share price, you're also seeing spill over to Intel a little bit as well. So that's one that-- and Dan talked a little bit about this when we chatted with him yesterday.

JULIE HYMAN: Right.

DIANE KING HALL: That slowdown in smartphone growth and how it is still dinging these companies.

JULIE HYMAN: Right. Well, so just to-- again, to remind viewers of the sort of stack within chipmakers, right? Taiwan Semiconductor is actually physically making the chips, right? A company like Nvidia, largely designs the chips. And then, Taiwan Semi makes the chips for them. That's mostly how it works.

Intel is both-- well, it's kind of trying to get back to being a so-called foundry, actually making the chips and also designing them. But that's how the separation works when it comes to Taiwan Semi. So it makes chips for Nvidia. It also makes chips for-- to your point, smartphones.

And there's a balance right now, right? Because demand for AI chips is ramping up.

DIANE KING HALL: It's not there yet though.

JULIE HYMAN: Right but demand for smartphone chips for PC chips is going down. And Wells Fargo, Analyst, pointing this out saying AI demand is quote, "Not enough to offset other weakness across all other segments." Most of the analysts did expect this downgrade to demand. This is the third time this year that the company has cut its forecast. But it's just the depth of it, the size of it that was a bit surprising.

DIANE KING HALL: It's true. And even TSMC Chairman Mark Liu said that the frenzy about the demand cannot extrapolate for the long term this is a quote, he said, "Neither can we predict the near future." meaning next year even. "How the sudden demand will continue or flatten out."

So just kind of throwing water on the case right now. Getting into this stock, the case for getting into it right now, maybe it's next year kind of thing. And even their CapEx forecast. They reiterated it but towards the lower end of the range to between 32 and 36 billion. So that'll certainly be one we're watching. We are watching it today.