TSMC holds tight to double-digit revenue growth forecast

Taiwan Semiconductor Manufacturing Co. (TSMC) has announced a forecast of 2015 revenue that may have set off the alarm for other companies in the electronics supply chain. The world's largest foundry said it "expects its full-year revenue growth rate will still be close to double digits" compared with its sales in 2014. The announcement marks the third time in 2105 that the company has slashed expectations for the year.

"We find 2015 revenue will be $25.5 billion, 10.2 per cent over 2014, barely meeting the double-digit target," said Bernstein analyst Mark Li. In January this year, TSMC said its sales revenue in 2015 would likely rise by "several per centage points" more than the estimated industry average of 12 per cent.

The dimmed forecast may indicate difficulty for other companies in the supply chain, according to some analysts.

"According to our industry surveys, we assume all of Taiwan's main foundries, including United Microelectronics Corp. (UMC) and Vanguard International, would deliver a below-consensus Q4 outlook to further impact the backend companies as well as downstream supply chain," said Fubon Research analyst Carlos Peng. "We project UMC's 4Q15 revenue will drop more than (that of) TSMC and Vanguard."

TSMC may need to trim its capital expansion plans for this year and in 2016, according to Maybank Kim Eng analyst Warren Lau. For the first time ever, TSMC in January led the semiconductor industry with a capex budget for 2015 of $11.5 to $12 billion, an increase of 11.5-20 per cent compared with 2014.

Inventory correction

Weaker-than-expected demand for smartphones and the chips inside has caused an inventory correction that's impacting TSMC and UMC. The current inventory digestion may end in 4Q15, but a recovery in 2016 may not materialise as demand remains uncertain, according to Maybank's Warren Lau.

Other analysts were more optimistic. TSMC is likely to see 10 per cent revenue growth this year and next, according to HSBC analyst Steven Pelayo.

Still others said longer-term problems may weigh on TSMC.

"Our structural concerns on TSMC persist," Li said. "Moore's Law is challenged with mounting cost barriers. The slowing smartphone growth also challenges TSMC's target of 10 per cent CAGR in revenue and net profits in the next five years. Competitive pressure from Samsung will stay elevated, in 14nm, 10nm and beyond."

TSMC's loss of business from Qualcomm to Samsung earlier this year may be offset by an increase of orders from Apple to TSMC as the foundry ramps up its 16nm FinFET manufacturing during Q4, according to three analysts surveyed by EE Times.

TSMC's trimmed expectations cap off a strong run for the company in 2014, when TSMC recorded record profit figures.

- Alan Patterson
??EE Times