Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s top contract chipmaker, yesterday raised its capital spending for this year to a record US$8.5 billion after reporting a quarterly net profit that greatly exceeded analysts’ expectations.
The rise in profit was driven by demand for inventory restocking, mainly from mobile device product clients.
The new capital expenditure forecast is a sharp turn-up from the US$6 billion the chipmaker estimated three months ago. The upgrade came after customers Qualcomm Inc and Nvidia Inc complained about not getting enough 28-nanometer chips for their mobile devices, like smartphones.
“We will back up our customers 100 percent in technology and capacity,” TSMC chairman and chief executive officer Morris Chang (張忠謀) told investors.
“The demand of 28-nanometer [chips] had surpassed, as I mentioned, our customers’ and our expectations, resulting in a supply shortage. We expect we will be very close to catching up in the fourth quarter of this year,” Chang said.
However, the planned increased capital spending, yesterday raised concerns over investment intensity among TSMC investors.
“It is a big surprise,” said Steven Pelayo, a semiconductor analyst with HSBC Securities.
He originally estimated TSMC would spend as much as US$7.5 billion on new equipment this year.
Pelayo said he was “skeptical” that end demand would validate TSMC’s massive investment in new equipment, as it would account for about 40 percent of the chipmaker’s revenues.
It was certain that there would be inventory buildup in the first half, as a lot of new electronic products are scheduled to hit the market later this year, but the key was the “sell through” of those products, he said.
“We see very strong growth for the company in the next few years. The strategy we outlined to you two years ago is bearing fruit,” Chang said.
TSMC targeted growing its pre-tax profit at an annual composite rate of 10 percent in the five-year period to 2015, he said.
The new spending would allow TSMC to secure its technological leadership in the 28-nanometer area, as the chips would increase rapidly to make up a 20 percent share of its total revenue in the final quarter of this year, from 5 percent last quarter.
Last quarter, TSMC’s net income dropped 7.7 percent to NT$33.47 billion in the first quarter, from NT$36.28 billion in the same period last year, as strong demand from mobile product clients helped boost its gross margin to 47.7 percent, exceeding the chipmaker’s forecast of 44.5 percent.
The first-quarter earnings beat the NT$29.74 billion estimated by Credit Suisse analyst Randy Abrams, who was more optimistic than most analysts in forecasting TSMC’s financial results.
On a quarterly basis, the results were a growth of 6 percent from NT$31.58 billion in the fourth quarter of last year.
“After two quarters of sequential decline [in revenue], TSMC’s business will have a solid growth this year,” Chang said, on the back of encouraging macroeconomic news from the US and China, who are the world’s biggest end-product markets.
“Orders were stronger than we had expected, which allowed us to have a solid second quarter. Forecasts of incoming orders are also very strong,” Chang said.
“This means the third quarter will be a continued-growth quarter,” he added.
Revenue is expected to grow to between NT$126 billion and NT$128 billion, setting an all-time high. That represents sequential growth of 19 percent to 21 percent from the first quarter’s NT$105.51 billion.