Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, yesterday posted another record high quarterly profit for last quarter, but it expects revenue to decline by about 10 percent sequentially this quarter because of slowing demand for certain high-end smartphones and inventory correction.
Net profit rose 0.3 percent to NT$51.95 billion (US$1.76 billion) in the quarter ending on Sept. 30, compared with the second quarter’s NT$49.38 billion, TSMC’s financial statement showed. On an annual basis, the figure represented a 5.2 percent increase.
This quarter, revenue is expected to slide to between NT$144 billion and NT$147 billion, meaning a quarterly reduction ranging from 9.58 percent to 11.43 percent, compared with NT$162.58 billion last quarter. More than half of TSMC’s revenue comes from the communications sector’s demand primarily for chips in handsets.
The quarterly contraction is more than the 11 percent drop estimated by Daiwa Capital Markets analyst Eric Chen (陳慧明) and the decline of 7 percent to 9 percent estimated by Michael Chou (周立中), who tracks the semiconductor industry for Deutsche Bank.
“This decline is mainly attributed to the soft demand for certain high-end smartphones and inventory correction,” TSMC chairman and chief executive officer Morris Chang (張忠謀) told an investors’ conference.
“We believe the decline is short- term,” Chang said.
Revenue for the whole of this year is expected to grow to between 17 percent and 18 percent annually, primarily boosted by its 28 nanometer (nm) chips, which would outpace the sector’s 11 percent growth and global semiconductor’s 4 percent increase, Chang said.
The supply chain’s day of inventory (DOI) is expected to drop significantly to approach the seasonal level at the end of this quarter, after DOI rose to above seasonal levels last quarter, Chang said.
Gross margin is expected to fall to between 44 percent and 46 percent from 48.9 percent last quarter, TSMC forecast.
“We are optimistic about 2014,” Chang said, expecting the company’s revenue to expand by a double-digit percentage next year from this year.
TSMC, which considers technology, manufacturing and customer partnership as its strengths, said it will be able to maintain its high market share in 28nm technology in the next few years and is confident that its 20nm technology will be very competitive.
TSMC has an 84 percent share of the 28nm chip market and generated 32 percent of its total revenue from 28nm chips last quarter.
The chipmaker is scheduled to ramp up production of advanced 20nm chips in the first quarter of next year. Revenue from the advanced 20nm chips are expected to account for 10 percent of the company’s total revenue next year.
Despite the strong business prospects, Daiwa’s Chen said yesterday that he “suggests potential investors remain on the sidelines as we see if the stock is being fully valued. We will become more critical of TSMC, if the shares drop below NT$95.”
He retained a “hold” rating on TSMC.
Shares rose 0.94 percent to NT$107 yesterday, the highest level in three months since July 18.
Chang said TSMC was to spend a similar amount of capital next year at about US$10 billion, compared with US$9.7 billion this year.
Addressing the issue of his CEO succession plan, Chang said TSMC would appoint a chief executive, or two co-CEOs by June next year as originally planned.
Chang resumed his position in June 2009 and said at the time that he would be in the position for three to five years.
Both co-chief operating officers (COO) Mark Liu (劉德音) and Wei Che-chia (魏哲家) are logical candidates to be the new CEO, after COO Chiang Shang-yi (蔣尚義) decided to retire at the end of this month, he said.
Chang said he would remain company chairman and would continue to have a “hands-on” role.