Investors continued to dump shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday, selling off 70.19 million, unconvinced the company will be able to secure its dominance in the advanced technology market and fearing the loss of a major contract to rivals Samsung Electronics Co.
In the last four sessions, overseas investors sold a net total of 99.59 million TSMC shares.
Yesterday’s selloff pushed the stock into its steepest decline in a year, 4.6 percent, to NT$124.5, with the volume of sales hitting the highest level in more than five months at 136 million shares.
On Wednesday, the world’s largest foundry posted a record-breaking quarterly net profit of NT$59.7 billion (US$1.99 billion) for last quarter, and estimated a better-than-expected sequential revenue growth of 14 percent for the quarter.
However, Maybank Kim Eng Securities Ltd analyst Warren Lau (劉華仁) downgraded its rating on TSMC to “sell” from “hold,” on the likelihood of Apple Inc and Qualcomm Inc moving 14nm finfield-effect-transistor (FinFET) orders to TSMC’s rivals is growing due to concerns about cost structure and performance.
“Despite its solid momentum, we have been cautious on TSMC shares due to the competition in 16nm or 14nm FinFET nodes,” Lau said in a report, titled The Party Ends Here.
Before yesterday, TSMC shares had risen by 22 percent this year.
The 16nm FinFET and 14nm FinFET chips are set to be the most advanced available in the near future.
Lau said TSMC introduced enhanced 16nm FinFET technology in the first quarter to improve performance, but the move was six months to nine months behind its rivals. The delay could result in loss of revenue growth from next year and could dampen TSMC’s growth outlook, he said.
The brokerage cut the target for shares of TSMC to NT$120 from NT$125.
On Wednesday, TSMC chairman Morris Chang (張忠謀) said the company would take a smaller share of the 16 nm FinFET chip market than competitors next year as it was late in offering the product. However, he said he was confident that TSMC would regain its leading position in the 16nm technology market in 2016.
TSMC is scheduled to ramp up 16nm production in the third quarter of next year, and expects the new technology to contribute a single-digit percentage of its revenue in the fourth quarter of next year, he said.
Morgan Stanley also expressed concern about the movement in shares of TSMC, saying fears over the loss of an order to Samsung are expected to continue to depress TSMC shares in the near future, so it maintained an “equal weight” recommendation on the stock.
The brokerage said the equal-weight rating was reenforced by expectations that as mid-range and low-cost smartphones have gained popularity, the high-end chip market that TSMC dominates could suffer from saturation.
It added that inventories in the semiconductor business in the second half of this year could be on the rise, so investors should adopt a cautious attitude toward TSMC.
While Morgan Stanley left an equal weight rating on TSMC shares unchanged, the brokerage revised upward its target price on TSMC to NT$118 from NT$104.
Citigroup Global Market Inc analyst Roland Shu (徐振志) also raised his firm’s target price of TSMC to NT$156 from NT$154, citing solid growth in demand for 20nm chips. Shu maintained his “buy” recommendation on the stock.
“While some in the market have higher expectations [of an adverse impact] on TSMC’s [16nm] FinFET chips, the overall impact on earnings is manageable,” Shu said.
Additional reporting by CNA