Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday surpassed forecasts by posting record profits for last quarter, driven by strong demand for the firm’s 28-nanometer (nm) chips for use in mobile devices.
The world’s biggest contract chipmaker saw its net profits increase 31 percent to NT$51.81 billion (US$1.73 billion), or NT$2 per share, in the second quarter, compared with NT$39.58 billion, or NT$1.53 per share, in the first quarter. The figure represents growth of 23.8 percent from the NT$41.84 billion posted in the same period a year ago.
The results exceeded the NT$1.91 earnings per share predicted by Credit Suisse analyst Abrams Randy and the NT$1.95 forecast by Daiwa Capital Markets’ Eric Chen (陳慧明).
“The record results once again demonstrate that our investment in R&D [research and development] and advanced capacities has paid off,” TSMC chief financial officer Lora Ho (何麗梅) said.
The growth momentum is expected to slow down a bit this quarter as supply chain inventory climbs quicker after sales of PCs and several smartphone models fell short of expectations, TSMC chairman and CEO Morris Chang (張忠謀) said.
“This is an early indicator that the fourth quarter may be a lossmaking quarter because we expect the supply chain will take serious action to manage their inventory in the second half of the year,” Chang said.
However, the inventory adjustments will help reduce overall inventory stock to approach the seasonal level of 66 days by the final quarter from 71 days this quarter and 73 days at the end of last quarter, he added.
Abrams said he expected TSMC’s revenue to see a 8 percent sequential decline next quarter.
The company predicted that revenue would grow sequentially this quarter by between 3.28 percent and 5.2 percent to between NT$161 billion and NT$164 billion, from the NT$155.89 billion seen last quarter.
The growth forecast lags behind a 7-percent sequential growth predicted by Abrams and a 13-percent expansion estimated by Chen.
"That is because Qualcomm is cutting orders on TSMC as sales of Samsung's Galaxy S4 is disappointing," Chen said.
Chips used in communications products accounted for 57 percent of TSMC’s revenue last quarter and added 22 percent more to revenue than in the previous quarter, a company financial statement showed.
Revenue contribution from advanced 28nm chips rose to 29 percent last quarter from 24 percent the previous quarter, the statement showed.
Gross margin is expected to slide to between 47 percent and 49 percent this quarter from 49 percent last quarter because of a lower utilization rate, the chipmaker forecast.
Operating profit margin is likely to fall to between 35 percent and 37 percent from last quarter’s 37 percent, TSMC said.
In response to a question asked by Abrams about the possibility of TSMC losing orders from large-volume customers, Chang said “this would not happen.”
Abrams’ question came amid recent media speculation that Apple Inc could pick Samsung Electronics Co, instead of TSMC, as its supplier for the next-generation A9 chip, after the South Korean chipmaker announced that it would start volume production of 14nm FinFet chips in 2015.
TSMC is widely expected to supply Apple’s A7 chip starting later this year as the smartphone maker is reducing the amount of components it gets from Samsung.
Daiwa forecast orders from Apple would account for 6 percent of TSMC’s total revenue next year and 10 percent in 2015.
TSMC said it plans to spend the same amount of money on new equipment next year as the record amount of between US$9.5 billion and US$10 billion that it spent this year.
"We still view TSMC standing out against our Taiwan[ese semiconductor] universe due to good pricing, competitive positioning and share gains," Abrams said.
Credit Suisse retained its “outperform” rating on TSMC with a target price of NT$116, while Daiwa maintained a “hold” rating to the stock, which tumbled 3.21 percent to NT$105.5 yesterday.