Taiwan Semi (TSM) to Report Q3 Earnings: What to Expect

Taiwan Semiconductor Manufacturing CompanyTSM is set to report third-quarter 2018 results on Oct 18.

The company topped the Zacks Consensus Estimate in three of the trailing four quarters while missing once, recording an average beat of 1.54%.

In the last reported quarter, Taiwan Semi delivered a positive earnings surprise of 4.44%. Earnings of 47 cents per ADR unit surged 11.9% year over year but declined 20.4% sequentially.

Adjusted revenues grew 11.2% on a year-over-year basis but fell 7.2% sequentially to $7.85 billion. The figure came in line with the Zacks Consensus Estimate of $7.85 billion.

The company's well performing technology products in the computer sector as well as in China led to year-over-year top-line growth in the second quarter. Further, strong momentum in the cryptocurrency mining space aided the momentum.

However, the sequential decline was primarily due to weakness in the mobile phone market.

For third-quarter 2018, the company anticipates revenues between $8.45 billion and $8.55 billion

Let's see how things are shaping up for this quarter.

Technology Products to Aid Growth

Taiwan Semi's strong efforts toward innovation of its technology products are likely to continue benefiting its top-line growth in the soon-to-be reported quarter.

By technology, the company's robust 10-nanometer (NM),16/20 NM, 7 NM, 28 NM and below advanced technologies will continue to drive its total wafer revenues. Notably, wafer forms core business of the company.

Especially, 7 NM technology is likely to contribute significantly to third-quarter results. Management is optimistic about the new product launches which are based on its 7 NM technology.

Further, the company's continued endeavor toward modification of this technology remains a key catalyst. Additionally, its wide usage across various sectors will continue to boost its demand.

All these factors have led to the strong predictions for 7 NM which is projected to contribute 10% to the wafer revenues of the company, expanding 900 basis points from its contributions in the last reported quarter.

Taiwan Semiconductor Manufacturing Company Ltd. Price and EPS Surprise

Taiwan Semiconductor Manufacturing Company Ltd. Price and EPS Surprise | Taiwan Semiconductor Manufacturing Company Ltd. Quote

Other Factors to Consider

Notably, lower capacity utilization rate which remained an overhang in the last quarter is now improving and expected to aid the performance of the company's products.

Moreover, the seasonality in the smartphone market has started to stabilize from the second half of this year. This is a good sign however sluggishness in this market remains a headwind.

Further, declining cryptocurrency prices and sluggish cryptocurrency mining space remain negatives for the company's strong momentum in this particular space.

Also, 28 NM technology's declining contributions to the company's wafer revenues is a major concern for its upcoming quarterly results.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP . The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Taiwan Semi currently has a Zacks Rank #4 (Sell) and an Earnings ESP of +0.00%. Our proven model indicates that the company is unlikely to beat estimates in the third quarter.

Stocks That Warrant a Look

Here are few stocks worth considering as our model shows that it has the right combination of elements to deliver an earnings beat in the upcoming releases.

Vishay Intertechnology VSH has an Earnings ESP of +0.62 and Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Advanced Energy Industries AEIS has an Earnings ESP of +2.70 and a Zacks Rank #2.

AMETEK AME has an Earnings ESP of +0.71% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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