To better satisfy customer demand, the world’s top contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), announced that it plans to hike capital spending by 23 percent for this year after posting record-high net profits on rebounding demand for chips used in PCs and handsets yesterday.
TSMC’s net income soared 64.8 percent to NT$40.28 billion (US$1.26 billion) in the quarter ending June 30, compared with NT$24.44 billion a year ago, as strong demand led to tight supply of TSMC’s chips. On a quarterly basis, that represented 19.7 percent growth.
The Hsinchu-based chipmaker said spending on new equipment would rise to US$5.9 billion this year, again hitting a historical high from the previous estimate of US$4.8 billion.
PHOTO: REUTERS
“We have the responsibility to do our utmost to respond to customer demand,” TSMC chairman Morris Chang (張忠謀) told an investor conference in an attempt to alleviate investors’ renewed worries about overcapacity risk next year.
“Their demand for this year and their demand forecast for next year are both reasonably genuine ... We do not build capacity on speculation. In other words, we don’t first build capacity and then look for customers,” Chang said.
The TSMC chairman said sales growth on the global contract chip market would be 40 percent this year, higher than the 36 percent estimated in April. Next year, growth would be even higher, he said.
In response to overcapacity doubts based on massive capital expansion from the world’s major chipmakers like newcomer GlobalFoundries Inc and Samsung Electronics Co, Chang said: “I definitely do not think so.”
“For me, the biggest issue is that the company is not going to leverage gross margin on the growth of revenues,” said Steven Pelayo, a semiconductor analysis with HSBC Securities.
TSMC expected gross margin to be between 48 percent and 50 percent this quarter, compared with 49.5 percent last quarter. Revenues would rise to between NT$109 billion and NT$111 billion, representing an increase of between 3.8 percent and 5.8 percent from the NT$104.92 billion generated last quarter, the chipmaker forecast.
Customers “are still in line [for its chips], but the line is shorter now,” Chang said, in response to an analyst’s question about whether demand for chips made on advanced technologies still greatly exceeded supply.
Inventories on semiconductor supply chains or at chip companies are increasing, but the inventories would still be below seasonal demand at the end of this quarter, before rising close to the seasonal level by the fourth quarter, Chang said.
The company said demand for consumer electronics would be the strongest, followed by communications and computers.
Credit Suisse analyst Randy Abrams forecast that TSMC’s net income would rise further to peak at NT$41.34 billion in the period from this month to September, while weakening inventory restocking strength in the fourth quarter could mean slower growth for the chipmaker.
“Still, TSMC is a great defensive stock for investors during the slowdown,” Pelayo said.
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