‘Uncertain’ Crypto Mining Demand Sees Taiwan Chipmaking Giant Lower Revenue Estimates

Uncertainty in the cryptocurrency mining market has led to the world’s leading chipmaker, Taiwan Semiconductor, to lower its revenue forecast for the year. Adding insult to injury, weakness in demand for Apple’s iPhone, for which Taiwan Semi is the supplier, is also weighing on this year’s expected sales.

Meanwhile, bitcoin mining was the champion of 2017, helping to drive Taiwan Semi’s 2017 revenue results higher by 6%, including a 10.1% increase in the fourth quarter alone. Now volatility in the bitcoin price, which has cut into miners’ profits, is taking its toll.

“For the whole year of 2018, we forecast the overall semiconductor market, excluding memory, will grow by 5%, while [the] foundry [market is] expected to grow by about a 8%. We forecast TSMC’s 2018 revenue in USD will be about a 10%, rather than the previously indicated 10% to 15% due to the Smartphone weakness and the uncertainty in cryptocurrency mining demand,” said C. C. Wei, Taiwain Semi’s Co-CEO and President, on the first quarter earnings call on Thursday.

But Wei attributed Q1’s performance to “strong demand from high-performance computing such as cryptocurrency mining and increases from both automotive and IoT,” sentiment that could spill over into the current quarter. Nonetheless, in Q2, Taiwan Semi is experiencing “some weakness on 28-nanometer,” while “the rest of the technology is still very strong on cryptocurrency,” said Taiwan Semi’s Mark Liu on the earnings call.

Most of Taiwan Semi’s cryptocurrency-mining demand, according to research by analyst firm Bernstein, originates from China’s Bitmain. But with the bitcoin price only just emerging from the doldrums, mining, which is the process by which volunteers solve complex equations to create more coins and earn a reward, has become a less profitable proposition.

Meanwhile, Taiwan Semi generates 10% of its revenues from chip sales tied to cryptocurrency mining, as per Morgan Stanley cited on CNBC. The Wall Street firm has been quick to paint a harrowing picture in which bitcoin prices persisting at current levels would trigger a “rapid drop” in mining profits.

Strong Demand vs. Uncertainty
But cryptocurrencies are on the rise, as evidenced by a market valuation that’s reached $365 billion, as CCN reported. And besides, Taiwan Semi may be skittish about the volatility in the bitcoin price, but its tone remains mostly positive, with company executives referencing “strong demand” on the one hand and “uncertainty” on the other.

For now, Taiwan Semi has no plans to “expand capacity for cryptocurrency mining chips unless we find that demand is sustainable,” according to Wei quoted in Nikkei Asian Review. In the interim, Taiwan Semi has its sights set on the blockchain and artificial intelligence (AI) for growth.

Taiwan Semi shares were off more than 5% on Thursday, but they’re trading in the green in premarket activity on Friday.