Shares of Apple (AAPL) and chipmakers dropped in morning trading following after key chip supplier Taiwan Semiconductor's (TSM) narrow earnings miss was accompanied by weak guidance. WEAK EARNINGS: Taiwan Semiconductor reported first quarter earnings per share of 59c per ADR unit on revenue of $8.46B, narrowly missing analysts' consensus estimates of 60c and $8.53B, respectively. Gross margin for the quarter was 50.3%, operating margin was 39%, and net profit margin was 36.2%. In a statement, Lora Ho, SVP and CFO of TSMC, said the business was impacted in Q1 by an "unfavorable foreign exchange rate as NT dollar has appreciated by 5.9% against U.S. dollar over first quarter of 2017," as well as "mobile product seasonality, while the continuing strong demand for cryptocurrency mining moderated the mobile softness." WEAK GUIDANCE: Taiwan Semi also issued similarly weak guidance. CFO Ho said that moving into the second quarter, "continued weak demand from our mobile sector will negatively impact our business despite strength in cryptocurrency mining." The company forecast Q2 revenue of $7.8B-$7.9B, below the $8.82B consensus, on a gross profit margin of 47%-49% and operating profit margin of 35%-37%. ANALYST COMMENTARY: Morgan Stanley analyst Charlie Chan told investors in a research note that smartphone semi weakness is "the main reason for [Taiwan Semi's] revenue shortfall," adding that "beside the order cuts from the current Apple iPhone X processor, we attribute the major revenue shortfall in the smartphone segment to key customer MediaTek... and around a month's delay of Apple's new 7nm processor to July." Chan also noted that among the RF suppliers, Qorvo (QRVO) and Skyworks (SWKS) have 35%-40% exposure to Apple and Broadcom (AVGO) has 20%. PRICE ACTION: In morning trading, shares of Taiwan Semi trading in New York are down 6%, while Apple is down about 2%. Chipmakers sliding in early trading include Nvidia (NVDA), AMD (AMD), Intel (INTC) and STMicroelectronics (STM). Qorvo, Skyworks and Broadcom are also significantly lower
