Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s top contract chipmaker, reported its strongest quarterly earnings in two years, bolstered by strong demand for chips used in handsets and consumer electronics.
Net income expanded to NT$33.66 billion (US$1.07 billion) in the January-March period, the highest level since the fourth quarter of 2007, beating most analysts’ expectations. That also represented a sharp jump from the NT$1.56 billion earned in the same period last year and a moderate 3.1 percent increase from the NT$32.67 billion recorded in the previous quarter.
TSMC expects the growth momentum to extend into the current quarter, driving revenues higher to between NT$100 billion and NT$102 billion, compared with the first quarter’s NT$92.19 billion.
“Business continues to be brisk. Relative to the first quarter, the consumer and communication segments in the second quarter will increase, while the computer segment will remain flat,” TSMC chief financial officer Lora Ho (何麗梅) said in a press release.
Gross margin is expected to rise to between 48 percent and 50 percent in the current quarter, compared with 47.9 percent in the first quarter, Ho said.
Operating profit margin could also climb to between 36.5 percent and 38.5 percent from 37 percent, she said.
TSMC chairman Morris Chang (張忠謀) forecast that the foundry market could see 36 percent year-on-year growth in revenues — outpacing the semiconductor market’s projected 22 percent expansion — due to strong demand from the PC and handset markets.
Robust demand has caused a 30 to 40 percent supply shortage of chips in the market, Chang said, eliminating the risks that chip buyers are engaged in double booking.
However, Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities, expressed concern over potential overcapacity.
“TSMC’s second-quarter outlook is slightly higher than my forecast of high-single digit growth [in revenues],” Chen said. “However, we are more concerned about overcapacity, which could emerge in the second half, or next year.”
TSMC plans to spend US$4.8 billion on expanding capacity by 13 percent this year to meet customer demand, but market growth is likely to slow down to a single-digit, casting a shadow on the company’s profitability, Chen said.
Chang said that although factory utilization would not be full over the next one to two years, the company’s break-even level for factory usage has improved greatly to 40 percent over the past years.
“To solve overcapacity problems, [orders from] integrated device manufacturers [IDM] are crucial,” Chen said.
IDM companies — which design, produce and sell chips — made up 23 percent of TSMC’s revenues in the first quarter, up from 21 percent in the fourth quarter of last year.
Chang said production outsourcing from IDM companies has bounced back strongly this year and is likely to rise in the long run after a slow period last year, when TSMC’s revenues from IDM firms dropped 42 percent year-on-year.
Asked about inventory, he said inventory in the fourth quarter was 10 days short of the seasonal average, adding that while some customers increased inventory this quarter, it would be premature to draw a conclusion given scant information.
Chang added that growth in the semiconductor market was likely to be lower than the seasonal average beginning this quarter and pick up in the first quarter of next year.
That appears to be a confirmation that the second half would be a slower period, Credit Suisse analyst Randy Abrams said in a brief note released yesterday.
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