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Apple ( AAPL ) supplier Taiwan Semiconductor Manufacturing ( TSM ) issued flat Q2 guidance early Thursday, noting demand for $500 smartphones is dwindling as China and emerging markets embrace cheaper devices. But on the brighter side, the chipmaker says it will reuse 95% of its chip-manufacturing tools as it transitions to 7-nanometer chips from 10-nm in 2017 through 2019. Growing 4G and 5G opportunities will drive the adoption, TSM’s co-CEO Mark Liu told analysts on the conference call. That’s not good news for chip-gear makers, though. The reuse rate will likely lead equipment makers to a year or two “in the desert between major technology nodes,” Semiconductors Advisors President Robert Maire wrote in a research report. Taiwan Semiconductor stock fell 3.4% to 25.29 on the stock market today . IBD’s 39-company Semiconductor Electronic-Manufacturing industry group was down 0.7%. Apple shares rose 6 cents to 112.10. IBD’s Take: How healthy is Taiwan Semiconductor’s stock, and how does it stack up vs. rivals? Find out at IBD Stock Checkup For its Q1 ended March 16, Taiwan Semiconductor reported $6.14 billion in sales and 38 cents earnings per American Depositary Receipt ex items, down a respective 13% and 18% on a year-over-year basis. Sales beat TSM’s updated guidance for $6.06 billion to $6.11 billion (based on an exchange rate of $1 to 33.18 New Taiwan dollars), and met the consensus model of seven analysts polled by Thomson Reuters. Current-quarter sales guidance for $6.64 billion to $6.74 billion (at $1 to NT$32.37) lagged expectations for $7.01 billion and would be flat year over year, but up 8%-9% sequentially. The consensus sees 39 cents per ADR ex items. For the year, Taiwan Semiconductor guided to 5%-10% growth, but it cut its smartphone growth expectations to 7% from 8%. It sees its PC, tablet and consumer electronics revenue falling 6%, 9% and 5%, respectively, in 2016. Semiconductors will grow 1%, Liu said. China and emerging markets prefer lower-tier smartphones, as demand for high-end smartphones slips. In January, high-end smartphone maker Apple guided to $50 billion to $53 billion in March-quarter sales, which would be down 11% year over year at the midpoint and mark its first such decline. Industry tracker Gartner says smartphone sales will grow 7% in 2016 to 1.9 billion units. It would be the industry’s first year of single-digit growth, and Liu noted the decline in his remarks. “We see (the) over-$500 phone is reducing, but (the) $400 phone is increasing quickly,” he said.