TSMC foresees double-digit sales growth

An attendee displays an Apple Inc. iPhone X for a photograph during an event at the Steve Jobs Theater in Cupertino, California, U.S., on Tuesday, Sept. 12, 2017. Apple Inc. unveiled its most important new iPhone for years to take on growing competition from Samsung Electronics Co., Google and a host of Chinese smartphone makers. The device, coming a decade after the original model, is Apple's first major redesign since 2014 and represents a significant upgrade to the iPhone 7 line. Photographer: David Paul Morris/Bloomberg

By BLOOMBERG

BEIJING • Taiwan Semiconductor Manufacturing Co Ltd (TSMC) forecast 11% to 12% growth in revenue in the holiday quarter, when Apple Inc’s much-anticipated iPhone X goes on sale.

TSMC’s technological edge and its role as the main chip supplier to Apple is helping it weather poor smartphone demand globally. The world’s largest producer of made-to-order microchips is predicting revenue of US$9.1 billion (RM38.4 billion) to US$9.2 billion in the December quarter, in line with projections for about US$9.15 billion.

That forecast came after TSMC posted a narrower than expected 7% decline in profit. The Taiwanese giant, which had reported three consecutive months of sales declines, is one of the industry’s most cost- effective chip producers and has steadily gained market share at the expense of smaller rivals.

It’s preparing to spend more than US$20 billion on its next state-of-the-art plant as it’s built out in coming years: The price for staying ahead of Intel Corp and Samsung Electronics Co Ltd in cutting-edge production. TSMC spends US$10 billion annually to stay abreast of rivals, but the cost of safeguarding its perch as the predominant player in bespoke semiconductors is soaring as chipmaking gets increasingly intricate. Founder Morris Chang — who’s handing the company’s reins to two lieutenants next year — said this month TSMC may have to bump its annual outlay up to as high as US$11 billion.

“TSMC will continue to receive advance process orders in the second half of 2017 from Apple and Huawei Technologies Co Ltd, among others, and its 10nm capacity will remain fully loaded,” Kevin Chen, an analyst with SinoPac Securities, wrote in a report ahead of the earnings release. TSMC is currently investing in even narrower transistor widths, which boost performance. “For 7nm, TSMC is progressing faster than competitor Samsung and is likely to begin mass production earlier than expected in the first quarter of 2018.”

Globally, demand for smartphones remains tepid. Investors had counted on a flurry of orders as Apple’s latest device prepared to hit store shelves, but early indications are that many consumers chose instead to wait it out for the more distinctive iPhone X. The US company is TSMC’s biggest customer, accounting for more than 15% of revenue, according to data compiled by Bloomberg. Credit Suisse trimmed its estimate on TSMC’s 2018 sales by about 1.2%, citing lower expectations on iPhones.

TSMC reported a net income of NT$89.9 billion (RM12.66 billion) in the September quarter, compared to the NT$87.7 billion projected.

Global smartphone demand had been expected to recover in 2017 from last year’s record slump, led by Android phonemakers such as Huawei, a TSMC customer that ranks third in global device sales. But consumers are waiting longer to replace smartphones, while slowing innovation in hardware is dampening enthusiasm. TSMC’s shares gained about 0.6% yesterday.

TSMC remains confident of sustaining healthy growth. Chang, who’s credited with helping pioneer the contract chipmaking industry, said TSMC’s sales growth should come close to 10% this year in US dollar terms. That’s down from 12.4% in 2016 and 2015’s 11%. The company expects annual US dollar revenue growth of 5% to 10% over the coming years, he added.