As the sluggish market for consumer electronics continues, Taiwan Semiconductor Manufacturing Company (TSMC) posted a third-quarter profit of 211 billion New Taiwan dollars ($6.69 billion) on Thursday.

The world’s largest contract chipmaker beat analyst projections despite the biggest earnings decline since the first quarter of 2019.

For the third quarter, TSMC reported revenue of 546.73 billion New Taiwan dollars ($17.28 billion) compared to Refinitiv consensus estimate of NT$540.39 billion, and net income of NT$211 billion compared to Refinitiv estimate of. NT$191.43 billion.

Revenue at TSMC decreased 10.83% year over year to NT$546.73 billion, while net income decreased 24.87% to NT$211 billion. In contrast, TSMC has projected sales for the third quarter of between $16.7 billion and $17.5 billion.

“Our business was supported by the strong ramp of our industry-leading 3-nanometer technology and higher demand for 5-nanometer technologies, partially offset by customers’ ongoing inventory adjustment,” said TSMC in its earnings report.

According to the chip giant, revenue climbed by 13.7% in the third quarter over the previous two.

Due to a post-pandemic decrease in demand for consumer electronics like laptops and smartphones, the Taiwanese firm recorded a decline in quarterly earnings in the second quarter for the first time in the previous four years. However, analysts have noted that chip stocks at PC and smartphone manufacturers are depleting and they anticipate a rebound in demand.

CEO C.C. Wei stated during the Thursday afternoon conference call that the company anticipates inventory to keep decreasing.

“Due to the persistent weaker overall macroeconomic conditions and slow demand recovery in China, customers remain cautious in their inventory control. That’s why we expect the inventory digestion to continue in the fourth quarter,” said Wei.

“Having said that, we are observing some early signs of demand stabilization in the PC and smartphone market,” he added.

The leading manufacturer of the most sophisticated CPUs in the world is TSMC. The Taiwanese company produces semiconductors, many of which are based on Arm architecture, for businesses including Apple and Nvidia.

Presently producing 3-nanometer circuits, TSMC intends to begin mass producing 2-nanometer chips in 2025.

According to Canalys data, the worldwide smartphone market shrank by just 1% in the third quarter of 2023, suggesting that the sector’s fall was slowing. Compared to the same period last year, the market fell 11% during the second quarter.

“Bolstered by regional recoveries and new product upgrade demand, the smartphone market recorded a double-digit sequential growth in Q3, ahead of the sales seasons,” said Canalys in a Tuesday report.

Large language models like ChatGPT and Chinese clones have proliferated, which has increased demand for AI chips. The shares of TSMC, which have increased 19% this year, have benefited from this.

The need for AI, according to CEO Wei, “is not enough to offset” the declining market for processors in consumer devices.

“Moving into fourth quarter 2023, AI-related demand continues to be strong but it is not enough to offset the overall cyclicality of our business,” said Wei during the earnings call on Thursday.

“We expect our business in the fourth quarter to be supported by the continued strong ramp [up] of our 3-nanometer technology, partially offset by customers’ continued inventory adjustment on the inventory side,” he said.

TSMC projects revenue for the fourth quarter of $18.8 billion to $19.6 billion.

The United States renewed TSMC’s waiver from trade penalties against China last week, enabling it to keep supplying cutting-edge semiconductor equipment for its activities in that country.

(Adapted from CNBC.com)

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