Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, is likely to report disappointing sales and operating margins in the fourth quarter and early next year because of uncertain demand and lower utilization rates, a brokerage in Taiwan said yesterday.
TSMC reported a 4 percent fall in third-quarter sales, better than the company’s guidance of a decline of 6 to 8 percent, aided by a weaker US dollar and last-minute orders in August from smartphone and CMOS sensor customers.
However, Barclays Capital cautioned in a research note that TSMC itself had reservations about expectations of a recovery in utilization rates starting in the second quarter of next year.
“We expect TSMC to guide for 4 percent and 7 percent quarter-on-quarter sales declines for the fourth quarter this year and first quarter next year, respectively, worse than consensus expectations of flattish sales,” Barclays Capital analyst Andrew Lu (陸行之) wrote.
Affected by the lower utilization rate, “our estimated operating margins of 29 percent for the fourth quarter this year and 26 percent for the first quarter next year [are lower than] consensus [estimates of] 30 to 31 percent,” the note said.
Because of the growing design complexity of new technologies, Lu expressed concern over whether TSMC would be able to derive 14 to 15 percent of its sales from 28-nanometer (nm) technology by the fourth quarter of next year, after a delay of two to three quarters in 28nm mass production.
Given that TSMC may invest US$5.5 billion to US$6 billion next year to gear up for the introduction of 28nm process technology, Lu wrote that TSMC could see its cost of plant and equipment depreciation rise faster than sales, causing further gross margin erosion.
Barclays retained its “equal weight” rating and target price of NT$63 for TSMC amid concerns over the company’s sales and earnings next year.
Shares of TSMC rose 1.3 percent to NT$70 yesterday on the Taiwan Stock Exchange.
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