TAIPEI — Analysts switched to a more negative outlook for Taiwan Semiconductor Manufacturing Co. (TSMC) after the world’s largest contract chipmaker announced a record quarterly profit for the end of 2014 that may mark the start of a downturn for the company during 2015.
TSMC yesterday said net income soared 79 percent from a year earlier to NT$79.99 billion (US$2.51 billion), a new quarterly record. The company also reported record full-year earnings, surging 40 percent to NT$263.9 billion.
“There is no doubt TSMC is continuing to execute well, which combined with better than expected iPhone 6 demand has led to stellar quarterly earnings since the second quarter of 2014,” said Susquehanna Financial Group analyst Mehdi Hosseini in a January 15 report. “However, several material risk factors on the horizon … will ultimately lead to lower earnings and thus disappointment.”
Samsung is aggressively ramping its internal Exynos application processor, aimed at reducing demand for Qualcomm chips in its mobile device division from 75 percent to 50 percent, according to Hosseini. Moreover, lower unit demand from Qualcomm, TSMC’s largest customer, will lead to lower-than-expected fab loading during the second and third quarters of this year, he said. TSMC will also face stiff competition to its 16 nanometer chips from Samsung's 14 nm offerings, which, combined with a smaller total addressable market, will lead to limited 16 nm revenue contribution in the second half of this year, Hosseini said.
Analysts said they expect Apple, also one of TSMC’s biggest customers, to switch more of its orders back to Samsung from TSMC.
Samsung’s progress with yield improvement will add to losses in TSMC’s share of the business from Apple, according to BNP Paribas analyst Szeho Ng in a January 15 report. TSMC’s monopoly of the Apple A8 business does not mean there will be room for further share gain in Apple’s future A9 orders, Ng said.
“Samsung’s decent 14nm/FinFET yield quality for its Galaxy S6 Exynos application processor (more complex than the A9) made it a serious bidder for Apple’s FinFET orders by quickening its tool delivery” Ng said.
TSMC’s competitive advantage in the foundry business by being the first to volume in advanced geometries looks set to wane as each of the technology nodes from 20 nm and smaller will be in capacities far smaller than that of its most successful 28 nm, according to Ng. He estimates a 120k-130k wafer/month capacity for 28 nm compared with 75k wafers per month for 20nm.
“We see TSMC moderating its FinFET capacity builds, though 10 nm (mini-line) pull-in still underpins its rising 2015 capital expenditure outlook,” Ng said.
Raising capex ante
TSMC raised its capital expenditure budget for 2015 to US$11.5-12.0 billion, an increase of 11.5-20.0 percent compared with 2014, mainly due to its confidence in demand for advanced geometries. The company said volume production for 16 nm FinFET is on schedule for the second quarter of this year.
TSMC’s sales revenue in 2015 will likely rise by "several percentage points" more than the estimated industry average of 12 percent, according to TSMC co-CEO Mark Liu.
For the first quarter of 2015, TSMC forecast sales revenue ranging from NT$221 billion to NT$224 billion, about 50 percent higher than the first quarter of 2014.
While TSMC may grow sales by a mid-teen percentage in 2015, its year-on-year momentum has peaked and will slow materially in the second half of 2015, according to Maybank Kim Eng analyst Warren Lau.
“The smaller share of 14/16 nm in 2015 and slower ramp of the 16nm node in the second half imply the new A9 chipset is likely to switch to Samsung,” Lau said. This, compounded with IDM-enabled solutions, which will reduce outsourcing, may hurt long-term growth opportunities, according to Lau. Samsung will reduce its demand for Qualcomm’s wireless chips in 2015, which will have an adverse impact on TSMC, he said.
Adding to concerns about the outlook for TSMC, sales of smartphones, the biggest business driver for chipmakers in general, are likely to slow this year. Growth of global smartphone sales, forecast at 12 percent this year, will drop from 26 percent in 2014, according to market research firm International Data Corp.