Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which provides foundry services for Apple Inc’s iPhone 6, yesterday raised its capital spending for this year by 25 percent from last year’s US$9.6 billion to US$12 billion.
Most of the spending is to be allotted for advanced technologies, including 16 nanometer (nm) and 10nm node solutions. The cutting-edge technologies target high-end smartphones.
TSMC’s announcement of higher capital spending indirectly refuted recent market speculation that the firm might postpone equipment installation for 16nm manufacturing, as well as rumors that clients were shifting 16nm orders to its rivals.
“We do not benchmark ourselves on speculation. We benchmark our capacity against our [clients’] needs,” company chairman Morris Chang (張忠謀) told investors.
The world’s top contract chipmaker expects to ramp up production of 16nm chips in the third quarter of this year as scheduled, Chang said, adding that advanced chips would contribute a high-single digit percentage point rise in its total revenue in the fourth quarter.
Chang said TSMC might be slightly behind rivals in expanding its 16nm market share, but it will regain technology leadership next year and the upward trend will continue.
“We will not lose 16nm market share once we catch up [to rivals] in 2016. Also, both 20nm and 16nm [technologies] are going to live longer than you think,” Chang said.
TSMC yesterday said strong demand for its 20nm chips led to its record-high quarterly net profit of NT$79.99 billion (US$2.52 billion) last quarter, up 4.8 percent sequentially from NT$66.34 billion in the third quarter of last year. On an annual basis, the figure surged 78.5 percent from NT$44.81 billion.
That brought the firm’s earnings per share for last year to an all-time high of NT$10.18.
Regarding clients ending their inventory clearance last quarter, TSMC co-CEO Mark Liu (劉德音) said: “We see near-term demand is quite healthy… We expect a good first quarter for this year. It will be a flattish quarter, better than our seasonal [pattern].”
TSMC said revenue for this quarter would be between NT$221 billion and NT$224 billion. Last quarter, the firm posted NT$222.52 billion in revenue, with 65 percent of that generated in the communications segment.
Commenting on its expansion in China, Chang said the company was seriously considering the proposition of making 28nm chips on the other side of the Taiwan Strait.
“There are obviously pluses and minuses… The cost is a minus, but, if you lose business, it’s even worse,” Chang said.
TSMC operates an 8-inch factory in China and plans to boost the factory’s annual capacity to 1.3 million wafers this year, from 1 million wafers last year.
UBS semiconductor industry analyst Eric Chen (陳慧明) yesterday said TSMC gave lots of positive signals.
“The fourth-quarter results and guidance for the first quarter are better than market expectations,” Chen said.
“The capex budget is much higher than the market consensus, indicating that TSMC is more confident about customer demand,” he said.
Most analysts expected TSMC to raise capital spending to slightly more than US$10 billion this year.
UBS has a “buy” rating on TSMC shares.
Citigroup and JPMorgan predicted TSMC would post a sequential decline of 4 percent to 5 percent this quarter, while Maybank projected a 7.87 percent quarterly reduction.
Last year, TSMC’s cash flow more than doubled to NT$132.99 billion, from NT$59.78 billion in 2013, raising the likelihood of the chipmaker raising its cash dividend distribution from last year’s NT$3 per share.
Chen said TSMC might distribute NT$4 per share in cash dividends this year.
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