Mon, Sep 10, 2018 - Page 15 News List

Slowdown in smartphone sales tests TSMC

Reuters, HSINCHU

Taiwan Semiconductor Manufacturing Co chairman Mark Liu speaks during an interview in Hsinchu on Aug. 31.

Photo: Reuters

Late last month, the new chairman of chipmaking titan Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), Mark Liu (劉德音), got the sort of news that would make any boss smile: His biggest competitor was throwing in the towel.

Fewer than three months into Liu’s tenure, rival GlobalFoundries Inc had announced that it would not compete in the latest generation of chipmaking technology. It was a reminder of just how dominant TSMC has become in manufacturing chips for other companies, a business it all but invented.

TSMC stock quickly hit an all-time high.

However, Liu’s job seems likely to get tougher, not easier.

In an interview at the company’s newly christened headquarters, named after company founder Morris Chang (張忠謀), Liu said global politics were his biggest worry.

“The worst you can imagine can be very bad,” Liu said, referring to geopolitical developments such as the US-China trade war and tensions between Taiwan and China.

The thoughtful, soft-spoken engineer took over from the ebullient and outspoken Chang at a tricky time.

Emerging competition from China casts an ominous shadow and the intricate network of relationships that have enabled TSMC and its peers in the global technology supply chain to thrive are under threat amid the trade dispute.

Worse, global smartphone sales have flattened. Purchases of smartphone chips by the likes of Apple Inc and Qualcomm Inc have powered TSMC for a decade.

However, Liu remains optimistic about that business.

“Smartphone units have plateaued, but the silicon content of each smartphone on average is still increasing,” he said, projecting growth in the high single-digit percentages over the next couple of years.

He said smartphones would continue to account for 40 to 50 percent of TSMC’s revenue.

A slowing smartphone market was one of the reasons that the company cut revenue targets this year. It also reduced capital spending for the year from US$11.5 billion-US$12 billion to US$10 billion-US$10.5 billion, a move it attributed at the time partly to more efficient equipment delivery and currency adjustments, but which Liu said was also influenced by softer demand.

Meanwhile, new markets such as autonomous vehicles and the Internet of Things — interconnected consumer and industrial devices — have been slow to arrive.

Liu chuckled as he predicted self-driving cars would come “within our lifetime,” but said little about when they might benefit TSMC.

“The issue is that these new areas are not going to be big enough in the foreseeable horizon to offset the slowing growth of smartphones,” Sanford C. Bernstein analyst Mark Li said.

Liu was more optimistic about the sophisticated chips that power data centers.

The boost TSMC and others enjoyed from the sale of such advanced processors for mining cryptocurrencies has largely dissipated, but Liu said the sector had made a lasting impact on high-performance computing (HPC).

“They have an amazing architecture innovation and it will carry onto other areas of HPC, including blockchain and artificial intelligence applications,” he said.

Moves by consumer tech giants such as Google to design their own chips could also be a boon for a company that vows to be “everyone’s foundry.”

Liu, who worked at Intel Corp and AT&T Inc’s Bell Laboratories before joining TSMC in 1993, shares the job of running the company with chief executive C.C. Wei (魏哲家), another industry veteran.

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