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.
The gross margin would increase to between 47 percent and 49 percent this quarter, from 47.7 percent last quarter, after factoring in erosion of 0.7 percentage points caused by higher electricity costs and 2.5 percentage points from ramping a new factory, as well as 0.5 percentage points from fluctuating foreign exchange rates.
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has appointed Rose Castanares, executive vice president of TSMC Arizona, as president of the subsidiary, which is responsible for carrying out massive investments by the Taiwanese tech giant in the US state, the company said in a statement yesterday. Castanares will succeed Brian Harrison as president of the Arizona subsidiary on Oct. 1 after the incumbent president steps down from the position with a transfer to the Arizona CEO office to serve as an advisor to TSMC Arizona’s chairman, the statement said. According to TSMC, Harrison is scheduled to retire on Dec. 31. Castanares joined TSMC in
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the
FACTORY SHIFT: While Taiwan produces most of the world’s AI servers, firms are under pressure to move manufacturing amid geopolitical tensions Lenovo Group Ltd (聯想) started building artificial intelligence (AI) servers in India’s south, the latest boon for the rapidly growing country’s push to become a high-tech powerhouse. The company yesterday said it has started making the large, powerful computers in Pondicherry, southeastern India, moving beyond products such as laptops and smartphones. The Chinese company would also build out its facilities in the Bangalore region, including a research lab with a focus on AI. Lenovo’s plans mark another win for Indian Prime Minister Narendra Modi, who tries to attract more technology investment into the country. While India’s tense relationship with China has suffered setbacks