HONG KONG  - Apple will help Taiwan Semiconductor Manufacturing dial up a recovery. Second-quarter earnings at the $213 billion Taiwanese chipmaker slid nearly 8% from a year earlier to T$67 billion, or $2.2 billion. New iPhone models suggest a rosier few months ahead, though. TSMC's growing share of the market in cutting-edge chips mean Apple’s iconic handsets and other snazzy devices can power its bottom line.

Thursday's results cap a dismal first half for the world's top contract chipmaker. After a sharp year-on-year fall in first-quarter sales, TSMC eked out a 3% rise in revenue for the three months to June, to a better-than-expected T$241 billion ($7.8 billion). Global trade tensions, shrinking worldwide demand for smartphones, combined with U.S. restrictions on China's Huawei, a major TSMC customer, remain major headaches for Chief Executive Wei. Even so, the company forecasts third-quarter sales to be as much as $9.2 billion.

That's probably thanks to Apple. The Cupertino-based giant, which analysts reckon accounts for over a fifth of TSMC's annual sales, is expected to release its next generation of handsets in September. While the iPhone-maker has been struggling to revive sales, roughly a third of its 900 million smartphone users are poised for an upgrade over the next year or so, analysts at Wedbush estimate.

There’s more. New computer and graphics processors from Advanced Micro Devices, an early adopter of TSMC’s so-called 7nm chips, should mean a further boost. Analysts at Bernstein reckon third-quarter earnings will hit $3.5 billion as a result, up over 20% from a year earlier.

And the improvement should last. One reason is TSMC's growing heft in the market for next-generation chips, which are getting more complex and expensive to make. Already, California-based GlobalFoundries last year dropped out of the costly race, leaving only TSMC and Samsung Electronics . Intel's recent decision to stop making 5G smartphone modems will only ring in more business for the contract chipmaker: Qualcomm, another major TSMC customer, is expected to be Apple's sole supplier starting 2020.

Investors are already pricing in much of the good news. After rising some 15% over the past 6 months, shares now fetch over 18 times forecast earnings for the next 12 months, Refinitiv data shows, well above its five-year average of almost 14 times. Enough to call home about.

CONTEXT NEWS

- Taiwan's TSMC, the world's largest contract chipmaker, on July 18 said revenue in the three months to June was T$241 billion ($7.8 billion), a 3.3% decrease from the same period last year. Earnings fell 7.6% from a year earlier to T$67 billion.

- Shares of TSMC were flat ahead of its earnings release, closing at T$254.

(Editing by Clara Ferreira Marques and Katrina Hamlin)

© Reuters News 2019