Apple, NVIDIA Sink as Supplier Cites Weak Demand

On Thursday, disappointing earnings results from Asian chipmaker Taiwan Semiconductor Manufacturing (TSM) sent the company's stock tumbling, dragging down shares of NVIDIA Corp. (NVDA) and Apple Inc. (AAPL) with it. 

The world's largest contract chipmaker posted its first-quarter results before the opening bell Thursday, disappointing investors with lower-than-expected revenue guidance. In Q2, the chipmaker forecasts sales between $7.8 billion to $7.9 billion, marking the lower end of its earlier guidance and missing the Street's target of $8.8 billion by a long shot. Expectations reflect a 10% revenue growth rate, compared to the initial forecast of between 10% to 15%. 

"Moving into second quarter 2018, continued weak demand from our mobile sector will negatively impact our business despite strength in cryptocurrency mining," said TSMC  Chief Financial Officer Lora Ho in a statement. In an earnings briefing, Co-Chief Executive C.C. Wei indicated that while the Chinese market started to pick up in smartphones, TSMC's smartphone segment, "which is very high end," struggled with softer demand. (See also: Why These 4 Big Tech Stocks Are Bargains.)

Trading at $39.58 at around 10:30 a.m. ET on Thursday, TSM has sunk 5.6% on the news, while smartphone maker Apple has seen its stock decline about 1.9% at a price of $174.48. 

High-End Segment Loses Out

In a note to clients Thursday, Morgan Stanley attributed TSMC's lackluster guidance weaker-than-expected demand for Apple's iPhone. "Smartphone semi weakness is the main reason for the revenue shortfall," wrote Morgan Stanley's Charlie Chan. "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 7[-nanometer] processor to July."

Apple's newest iPhone X, starting at a price tag of $999, has faced heightened competition from cheaper rivals from Asia where home-grown rivals have steadily gained market share. This trend coincides with a broader slowdown for the global industry, as industry data demonstrated worldwide smartphone shipment volumes declined for the first time in 2017. Apple stock has been under pressure in the recent months as analysts highlight the need for the tech giant to build out its software and services segment in order to hedge against waning demand for smartphones and longer replacement cycles for its devices. 

NVIDIA, whose stock is down 2% as of Thursday morning at $231.73, is slated to report its most recent fiscal first-quarter earnings results in a few weeks, likely during the week of May 7. (See also: Apple Needs to Keep Upping iPhone Prices: Analysts.)