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TSMC gets negative outlook from analysts

Posted: 20 Jan 2015 ?? ?Print Version ?Bookmark and Share

Keywords:16nm? A9? Exynos? smartphones? A8?

Taiwan Semiconductor Manufacturing Co. (TSMC) announced a record quarterly profit for the end of 2014, but analysts reacted with a negative outlook for the world's largest contract chipmaker during 2015.

TSMC yesterday said net income soared 79 per cent from a year earlier to NT$79.99 billion ($2.51 billion), a new quarterly record. The company also reported record full-year earnings, surging 40 per cent to NT$263.9 billion ($8.28 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 per cent to 50 per cent, 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 16nm chips from Samsung's 14nm offerings, which, combined with a smaller total addressable market, will lead to limited 16nm revenue contribution in the second half of this year, Hosseini said.

Apple orders

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 20nm and smaller will be in capacities far smaller than that of its most successful 28nm, according to Ng. He estimates a 120k-130k wafer/month capacity for 28nm compared with 75k wafers per month for 20nm.

"We see TSMC moderating its FinFET capacity builds, though 10nm (mini-line) pull-in still underpins its rising 2015 capital expenditure outlook," Ng said.

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