TSMC forecasts outlook below estimates

TSMC foresees sales of RM33.3b to RM33.7b in the 1Q, missing projections for RM34.1b

by BLOOMBERG

BEIJINGTaiwan Semiconductor Manufacturing Co (TSMC) forecasts revenue that fell short of expectations, as waning smartphone sales in China and a strong local currency outweigh booming demand from cryptocurrency miners.

TSMC, the main chip supplier to Apple Inc’s iPhones and iPads, foresees sales of US$8.4 billion (RM33.26 billion) to US$8.5 billion in the first quarter (1Q), missing projections for US$8.61 billion. It’s predicting a gross margin of 49.5% to 51.5%, only flat to slightly up from the December quarter.

The disappointing outlook may stoke concerns that sales of the top-end iPhone X will turn out weaker than anticipated over the holidays and early 2018. TSMC gets about a fifth of its revenue from Apple.

Investors had hoped that quickening demand for the muscular chips used to mine virtual currencies including Bitcoin would offset the impact of a weakening mobile market.

Co-CEO Mark Liu told investors yesterday its high-performance computing unit will experience record growth in US dollar terms in 2018. Some analysts estimate crypto-miners’ contribution to TSMC’s revenue could double this year to 5%-10%.

TSMC is preparing to move into cutting-edge seven-nanometre (nm) chip production from June — a big question mark given it’s untested technology. But a bigger unknown may be TSMC’s budding crypto-miners business, at a time regulators from China to South Korea have clamped down on virtual currency trading to curb financial risks.

“How the customers will accept the 7nm technology, and when exactly will they able to deliver products, places uncertainty on TSMC’s performance in 2018,” said Roger Sheng, an analyst with Gartner in Shanghai. “A bigger uncertainty is cryptocurrency though. We can see many governments across the globe planning to rein it in. That’s a big headwind.”

TSMC gave out its forecasts after reporting a third consecutive quarter of declining profit. The world’s largest producer of made-to-order microchips reported a 0.9% dip in net income to NT$99.3 billion (RM13.46 billion) in the December quarter, exceeding the NT$97.2 billion projected. Gross margins slipped to 50% from 52.3%.

Smartphone shipments slid almost 12% in China in 2017 as portions of the world’s largest mobile market approached saturation point, according to the China Academy of Information and Communications Technology. TSMC, however, may win more orders from fast-growing brands such as Huawei, which designs its own mobile processors and may turn to TSMC for mass production.

Founder Morris Chang — who’s handing the company’s reins to two lieutenants this year — said yesterday that the high-performance computing, Internet of Things and auto segments will help drive revenue growth of 10% to 15% in 2018. New businesses — including chips for crypto-mining — helped offset the Taiwanese dollar, which gained about 8% in 2017, eroding margins for export-oriented industries. The company had previously reported a 6% rise in 4Q revenue to NT$277.6 billion.

In the longer term, TSMC’s technological edge is expected to help it weather poor smartphone sales globally. Revenue from 10nm chips — the most advanced in its line-up — jumped to 25% of overall sales, from just a 10th in the previous quarter, typically a function of the latest iPhones.

Demand from companies developing artificial intelligence applications will help TSMC consolidate its market lead, E Sun Securities analysts Wayne Lin and Kaiwei Lin wrote in a report ahead of the earnings release.

TSMC’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 in cutting-edge production. — Bloomberg