Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, faces long-term uncertainty because of a weakening economic outlook and fierce competition from rivals, Barclays Capital said.
Although late rush orders have helped TSMC raise its third--quarter sales guidance and maintain its leading position in the industry, the investment bank reiterated its “Equal weight” stock rating for TSMC and maintained its target price of NT$63 (US$2.13).
“Our concerns are foundry overcapacity, lack of visibility into 4Q11-1Q12, TSMC’s potential loss of Apple’s A6 processor orders, and Globalfoundries (GF) 28nm (nanometer) HKMG (High-k/Metal Gate) gate-first ramp up plan looking likely to be earlier than expected,” Barclays Capital analyst Andrew Lu (陸行之) said in a research note.
“We see a possibility that GF may support Samsung on A6 production in the future once A6 migrates to 28nm HKMG gate-first from 32nm,” he wrote.
Earlier this month, TSMC forecast that sales for the third quarter of this year would exceed expectations because of last minute orders it had received.
TSMC’s sales rose 6.2 percent last month from July to NT$37.65 billion, the second-highest level in the company’s history after the NT$38.43 billion posted in October last year. Last month’s figure was up 0.7 percent from a year earlier.
However, in late July, TSMC chairman and chief executive -Morris Chang (張忠謀) cut his growth forecast for the global foundry business by almost half to 7 percent for this year, as uncertainty over the global economy remained in place.
As a consequence of the slower growth projection, the company lowered its capital expenditure budget for this year from US$7.8 billion to US$7.4 billion. According to tech research firm Gartner Inc, worldwide semiconductor revenue has been stagnant this year, with the market on pace to total US$299 billion for the year, down 0.1 percent from last year.
Gartner had previously projected in the second-quarter annual growth of 5.1 percent for the industry.
“Three key factors are shaping the short-term outlook: excess inventory, manufacturing overcapacity and slowing demand due to economic weakness,” Gartner research vice president Bryan Lewis said.
Semiconductor companies’ third-quarter guidances have come in well below seasonal averages, as the current guidance by vendors points to flat to down third-quarter growth, Gartner said.
“Typically, we see guidance for 8 to 9 percent growth in the third quarter because of back-to-school and the holiday build,” Lewis said. “The supply chain is also showing significant slowdown, and semiconductor-related inventory levels are still elevated.”
Gartner has also lowered its forecast for semiconductor growth next year from 8.6 percent to 4.6 percent due to a worsening macroeconomic outlook.