TSMC's slowdown is mostly due to competition from regional rivals such as South Korea's Samsung, and as China's tech industry home-grown industry. However it could also be due to reduced orders from some of its key partners such as Apple whose numbers are also falling.
Communication chips, including smartphones, accounted for 62 percent of TSMC's revenue in the second quarter.
Mark Liu, co-chief executive officer of TSMC said that during the second quarter he saw demand for smartphones become weaker than expected due to slower demand in emerging markets and in China for mid to low-end smartphones.
"This weaker demand is probably due to a strong US dollar to emerging market currencies and... regional economic conditions," he added.
Although TSMC forecast an uptick for the third quarter, growth would remain "modest".
"Slower demand in emerging markets and China, macroeconomic uncertainties, and cautious inventory management are behind our modest growth outlook in the third quarter," he said.
Sales for the three months until June 30 rose 12.2 percent year-on-year to $6.6 billion)but slid 7.5 percent when compared with the first quarter.
TSMC expects a slight improvement in the third quarter because Apple is about to release something new.
"Growth is expected to come from industrial and automotive segments, and new iPhone launches and new Android high-end phones."
