Taiwan Semiconductor Manufacturing Co Ltd (TSMC), a major supplier to Apple, announced a forecast of a 16% drop in sales for the second quarter.

This is because consumers are struggling with an inventory glut, while a weakening global economy is clouding the demand outlook.

The world’s largest contract chipmaker reported the smallest growth in quarterly earnings in nearly four years.

Despite this, TSMC is investing in long-term demand, and CEO C.C. Wei is positive about the future, stating that the company expects its business to hit a bottom in the second quarter and pick up after that.

This is in line with the improved outlooks projected by Apple, Nvidia Corp, and Advanced Micro Devices Inc, some of TSMC’s biggest customers.

Chief Financial Officer Wendell Huang stated that the company expects to be further impacted by customer inventory adjustments moving into the second quarter of 2023.

TSMC also expects growth in the global semiconductor market, excluding memory, to decline in the mid-single digit percentage range year-on-year for 2023.

The company expects its business to outperform both markets.

TSMC has dominance in making some of the most advanced chips for high-end customers such as Apple, which has shielded it from a broader industry downturn.

In the first quarter, the company posted a surprise rise in net profit, up 2% from a year earlier, but that was still the smallest quarterly growth since mid-2019 as global economic woes dented demand for chips.

High-performance computing chips and smartphone chips represented 44% and 34% of revenue, respectively.

China accounted for 15% of TSMC’s first-quarter net revenue, versus 12% in the previous quarter, while North America’s share of the pie fell to 63% from 69%.

TSMC expects revenue of $15.2-$16 billion in the quarter ending June 30, down from $18.16 billion a year earlier.

First-half revenue is likely to fall around 10% in US dollar terms year-on-year, TSMC said, while it sees 2023 revenue falling by a low-to-mid single-digit percent.

Regarding the US Chips Act, designed to boost US chip manufacturing, CFO Huang said TSMC was in the process of applying for subsidies, so it could not provide details.

The law requires firms that take US funds to agree not to undertake big expansions of chip manufacturing facilities in “countries of concern” such as China for 10 years.

CEO Wei said TSMC’s supply for its most advanced 3-nanometre chips still lagged behind demand, and that new products from clients in the third quarter would further boost demand for the chips.

TSMC has repeatedly said the business would continue to benefit from a “mega-trend” of demand for high-performance computing chips for fifth-generation (5G) communications networks and artificial intelligence.

TSMC’s new plant in Taiwan’s southern city of Kaohsiung will focus on more advanced chips than the previously announced 28-nanometre technology. CEO Wei said TSMC is evaluating the possibility of building a specialty fabrication plant in Europe for auto chips.

TSMC’s share price fell 27.1% in 2022, but is up around 14% this year, giving it a market value of $433.9 billion.

The stock rose 0.6% on Thursday versus a 0.4% fall in the benchmark index (.TWII).

TSMC is investing in long-term demand despite the current softness in the market, and its business is expected to pick up after the second quarter.