TSMC faces weak Q4 prospects

KEEN COMPETITORS::Decellerating smartphone sales and greater choice in that market might mean the company’s record-high sales will not continue next quarter

By Kevin Chen  /  Staff reporter

Sat, Oct 12, 2013 - Page 14

Singapore-based Maybank Kim Eng Securities Ltd yesterday forecast Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) could see consolidated sales decline 10 to 15 percent this quarter from a record level of NT$162.57 billion (US$5.51 billion) last quarter.

The world’s No. 1 contract chipmaker is likely to post sales of NT$142 billion during the October-to-December quarter because of inventory adjustments by some of its fabless semiconductor clients, lower average selling prices and unfavorable foreign exchange rates, the brokerage said.

A softer fourth-quarter for TSMC also reflects the slowdown in high-end smartphone sales, as well as keen competition and market-share shift of the 28 nanometer (nm) node technology in the foundry business, Maybank Kim Eng analyst Warren Lau (劉華仁) said in a client note.

“Some of TSMC’s major customers are seeing demand for high-end smartphones slowing down and carrying high inventory to boot,” Lau wrote in the note.

“The diversification of 28nm foundry sources is another cause for concern, as it may result in market-share shift and pricing pressure,” he added.

While TSMC could see a weak fourth quarter, the company’s technology leadership and order gains from Apple Inc are expected to help it enter into next year on a solid base, according to the Hong Kong-based analyst.


Maybank Kim Eng expects TSMC to benefit from its potential commercial production for Apple’s 20nm application processor in the first quarter next year and realize revenue in the second quarter.

With sentiment toward TSMC’s sales this quarter turning cautious, the brokerage yesterday adjusted downward its second-half earnings forecast for TSMC by 5 percent and lowered its target price for the stock to NT$105 from NT$111.

Shares of TSMC rose 1.43 percent to close at NT$106.5 yesterday. They have advanced 9.79 percent so far this year.

However, Deutsche Bank analyst Michael Chou (周立中) appears less bearish about TSMC’s outlook. While forecasting TSMC’s sales to fall by 7 to 9 percent this quarter from last year, he believes the company will retain its market leadership in the next two years.

“We expect the company to ramp up its 20nm chip production at a faster pace than 28nm chips for the first year due to improved price performance and strengthened technology leadership,” Chou wrote in a separate research note yesterday.


TSMC’s leading position in the 16nm technology will be even greater than that in the 20nm area, Chou said, adding that this will allow the company to maintain the “dollar content per smartphone” and sustain its earnings growth through 2015.

According to Chou, every smartphone sold contributed about US$7 to TSMC’s revenue last year and this year, and the company could manage to keep the figure at about US$6.9 in the next two years, despite the rising market penetration of mid and low-end smartphones.

Deutsche Bank maintains a “buy” recommendation on the company’s shares, with a target price of NT$138.