Taiwan Semiconductor Manufacturing Co., Asia's biggest company in terms of market capitalization outside China, fell nearly 4% in Taipei trading Friday, snapping four days of gains.
TSMC's gross margin in the first six months of the year was 50%, below the 51% average estimated by analysts, in part because of the Taiwan dollar's appreciation during the period, Bloomberg said Friday.
Morgan Stanley analysts called TSMC's third quarter guidance a "disappointment," warning that gross margins could drop below 50% as early as next year, the report said.
While the world's biggest contract microchip manufacturer posted record quarterly sales and projected higher revenue for the current quarter, investors took profits, worried the company's best times could already be behind it.
TSMC chief executive C.C. Wei told analysts on a call that he expected chip deliveries to car manufacturers in particular to pick up in the current quarter and over the rest of 2021.
"Its earnings were excellent and to me, the market seems to be a bit overreacting," Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said in quotes by Channel News Asia.
However, Fujito also said the fall in TSMC profit margin led to the perception its "growth momentum might be peaking out."
TSMC has faced mounting pressure to boost capacity to help ease a shortage in supply that has affected the automobile and other industries.
The Taiwan-based company pledged earlier this year to allocate $100 billion over three years to build new fabrication facilities and invest in more advanced nodes, as competitors like Samsung Electronics and Intel seek to catch up.
Today, only three foundries can mass produce chips that are 10-nanometer or smaller - TSMC, Samsung and Intel.
TSMC remains ahead of both companies in the "process race" to manufacture smaller and more power-efficient semiconductors.
TSMC said it will boost production capacity in China and does not rule out the possibility of a "second phase" expansion at its $12 billion factory in the U.S. state of Arizona.
Meanwhile, sales for this year will grow more than 20%, a slight rise from a previous estimate of 20% growth in full-year sales, TSMC said.