Taiwan Semi Running Hard ... But Is The Track A Treadmill?
Stephen Simpson, CFA
Stephen Simpson, CFA
Taiwan Semiconductor: The Flaws In The Bear Case
Taiwan Semiconductor Faces Significant Risks In The Year Ahead
Paulo Santos • 30 Comments
Paulo Santos • 30 Comments
May 13, 2015, 11:50 AM
- Digitimes reports TSMC (TSM +0.2%) has landed orders from Apple (NASDAQ:AAPL) to produce SSD controller ICs for the company. The chips will reportedly be made using TSMC's older 28nm manufacturing process - Apple's A8 CPU is made using TSMC's 20nm process, and the A9 is expected to rely on a next-gen 16nm process (along with Samsung's 14nm process).
- In addition to the A8, TSMC manufactures Apple's Touch ID fingerprint sensors, and acts as a foundry for a variety of Apple chip suppliers (Qualcomm, Broadcom, Cirrus Logic, etc.). The company's SSD controller clients include market leader Marvell and Taiwan's Phison Electronics.
- Back in 2011, Apple bought Anobit, an Israeli maker of high-performance flash controllers, for a reported $390M.
May 8, 2015, 4:53 PM
- TSMC (NYSE:TSM) had April revenue of NT$75.33B ($2.45B), +4.2% Q/Q and +21.7% Y/Y.
- Annual growth slowed noticeably from March's 44.7% and Q1's 50%. TSMC offered soft Q2 sales guidance last month, while citing weak demand from certain mobile chipmakers. Samsung's decision not to use Qualcomm's Snapdragon 810 processor (made by TSMC) in the Galaxy S6 in favor of exclusively using its (internally-manufactured) Exynos 7420 is playing a role. At the same time, Apple A8 CPU orders continue to provide a boost.
- Smaller rival UMC has reported April revenue of NT$13.02B ($424M), +2.4% M/M and +12.9% Y/Y. Annual growth was nearly even with March's 12.6%, though below the 18.8% seen for the whole of Q1.
- TSMC rose 0.7% in regular trading. UMC fell 2.6%.
Apr. 20, 2015, 5:39 PM
- Backing up industry speculation to the effect (as well as a 2014 Digitimes report that pointed in this direction), Re/code reports Qualcomm's (NASDAQ:QCOM) Snapdragon 820 baseband/app processor (its next-gen flagship) will be made using Samsung's (OTC:SSNLF) 14nm FinFET (3D transistor) manufacturing process. Qualcomm has historically relied on TSMC (NYSE:TSM) to make its most advanced processors, though it also does business with other foundries.
- The scoop follows a slew of reports stating Samsung's 14nm process will be used to manufacture at least a majority of Apple's A9 CPUs; KGI reported last week TSMC (set to ramp 16nm FinFET production) will handle 30% of A9 production after (Samsung 14nm partner) GlobalFoundries encountered yield issues.
- No word on whether Samsung will reward Qualcomm's decision by using the 820 in future high-end phones. Samsung opted to use its Exynos 7420 processor (also made using its 14nm process) instead of Qualcomm's Snapdragon 810 (made using TSMC's 20nm process) in the Galaxy S6, and is also using its own baseband modems in a large chunk of S6 units.
- The 820, which makes use of Qualcomm's next-gen Kryo CPU core and Zeroth neural networking tech, begins sampling in 2H15. The timetable suggests commercial hardware featuring the SoC could arrive in 1H16 (in time for the Galaxy S7?). Qualcomm's FQ2 report is due on Wednesday.
Apr. 16, 2015, 6:34 PM
- Two days after Intel cut its 2015 capex budget by $1.3B to $8.7B (+/- $500M), TSMC (NYSE:TSM) has used its Q1 report to cut its 2015 capex budget by $1B to $10.5B-$11.5B.
- Co-CEO Mark Liu: "We think semiconductor industry growth this year has indeed adjusted down from 5% earlier to 4%. It’s really due to the macroeconomic situation around the world. The foundry growth rate will adjust down too. We’re looking at about 10%."
- CFO Lora Ho notes there's 90% commonality in equipment used by TSMC's 20nm process and its next-gen 16nm FinFET process (the focus of much of this year's spending). Co-CEO C.C. Wei states TSMC's 16nm ramp is going faster than expected thanks to improving yields; volume production is expected to start in Q3.
- The world's biggest foundry is still set to spend more on capex than it did in 2014 ($9.52B), something that can't be said for Intel. Samsung has been forecast by IC Insights to spend $11.3B on chip capex this year, as it ramps 14nm production and expands DRAM/NAND output.
- Chip equipment giant Applied Materials (NASDAQ:AMAT) sold off in regular trading following the news. AMAT also briefly dropped in response to Intel's capex cut, but closed higher the next day amid a chip stock rally.
- Earlier: TSMC off slightly after Q1 EPS beat, light Q2 sales guidance
Apr. 16, 2015, 12:52 PM
- While TSMC (TSM -0.8%) beat Q1 EPS estimates, revenue of NT$222B ($7.1B) was in-line. In addition, the world's top foundry is guiding for Q1 revenue of NT$204B-NT$207B ($6.53B-$6.62B, +11%-13% Y/Y), below a $6.9B consensus, and has cut its full-year sales growth forecast to 10% from 12%. However, light guidance was expected following CFO Lora Ho's cautious March remarks (helped trigger a chip stock selloff).
- "Some mobile customers cut back their delivery schedule because demand didn’t come as they had anticipated," says co-CEO Mark Liu. That could be a reference to both Qualcomm's Galaxy 6 app processor loss and soft chip demand from Chinese phone OEMs (reported by several firms). Liu adds customer inventory adjustments are expected to be finished by the end of Q2, and that "healthy" 2015 smartphone growth is still expected.
- Q1 gross margin was 49.3%, -40 bps Q/Q but +180 bps Y/Y and in-line with guidance of 48.5%-50.5%. With lower fab utilization acting as a headwind, Q2 GM guidance is at 47.5%-49.5%.
- Op. margin rose 360 bps Y/Y to 39%. 20nm chip production (tied to Apple A8 CPU orders) was 16% of wafer revenue vs. 21% in Q4. 28nm production remained at 30% of wafer revenue.
- Separately, KGI's Ming-Chi Kuo reports Apple has made a "last-minute decision" to have TSMC handle 30% of Apple A9 CPU production following poor yields from GlobalFoundries (has partnered with Samsung to develop a 14nm process expected to be used for the A9). Digitimes previously reported TSMC will remain a "major" iPhone CPU supplier in 2H15.
- Q1 results, PR
Apr. 16, 2015, 6:31 AM
- Taiwan Semiconductor Manufacturing (NYSE:TSM): Q1 EPS of $0.48 beats by $0.01.
- Revenue of NT$222.03B (+49.8% Y/Y)
- Shares -2.89% PM.
Apr. 15, 2015, 5:30 PM
Apr. 10, 2015, 11:50 AM
- TSMC (TSM +0.1%) had March revenue of NT$72.27B ($2.32B), +15.4% M/M and +44.7% Y/Y. Annual growth was at 33.8% in February, 69.4% in January, and 39.9% in December.
- The March figure puts the foundry's total Q1 revenue at NT$222.03B ($7.12B), in-line with guidance of NT$221B-NT$224B and slightly above a $7.08B consensus. Strong Apple A8 CPU orders, along with demand from various Apple component suppliers, have acted as a major tailwind.
- TSMC sold off last month (and triggered a broader chip stock selloff) following cautious remarks from CFO Lora Ho about near-term demand and inventory levels. Analysts argued share loss to Samsung (ramping 14nm production) is a likely culprit.
Mar. 27, 2015, 4:54 PM
- After falling hard on Wednesday amid cautious remarks from TSMC (TSM -1.1%), and falling again (to a lesser extent) on Thursday in the wake of SanDisk's warning, chip stocks rallied during the final 30 minutes of trading (SOXX +2.8%) in response to a WSJ report stating Intel is in talks to buy FPGA vendor Altera. A deal would be among the biggest in the chip industry's non-stop consolidation wave, rivaled only by NXP/Freescale.
- In addition to Altera rivals Xilinx and Lattice (previously covered), chipmakers catching a bid included Avago (AVGO +2.8%), InvenSense (INVN +2.6%), Cirrus Logic (CRUS +2.5%), Synaptics (SYNA +1.9%), Analog Devices (ADI +2.5%), QuickLogic (QUIK +3.8%) (a smaller FPGA maker), and Fairchild (FCS +3.2%).
- InvenSense has occasionally been the subject of speculation Intel or Qualcomm could make a bid. Acquisition-hungry Avago, meanwhile, is reportedly on the hunt for new deals after bidding for Freescale.
- More than a few analysts have defended chip stocks following the TSMC remarks. Jefferies and Susquehanna have argued TSMC's issues are due to share loss to Samsung (partly for Apple/Qualcomm orders), and BMO notes Nvidia (a major TSMC client) recently disclosed adding Samsung as a foundry partner. It's a fan of Synaptics and Maxim (MXIM +2.2%) due to their Galaxy S6 exposure.
- BofA/Merrill reports seeing pockets of excess chip inventory (for PCs and emerging markets smartphones) during a Taiwanese trip, but thinks Apple and Samsung phone-related orders are healthy, as are auto, industrial, and data center chip demand.
- Credit Suisse: "Our cyclical and structural call on Semis remains unchanged – cycle-to-date has been well behaved, Semi rev to global GDP is poised to inflect higher and Semis relative valuation still attractive – growing top/bottom line faster than SPX, twice the margin profile, essentially same dividend yield trading at a two turn discount."
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Mar. 26, 2015, 10:50 AM
- The Philadelphia Semi Index (SOXX -1.8%) is now down 6% over the last two days. Today's losses come after NAND flash giant SanDisk issued a Q1 warning and withdrew its full-year guidance - price pressure, soft enterprise sales, and delayed product qualifications were all blamed.
- Meanwhile, some are partly blaming yesterday's big selloff on cautious remarks from TSMC (has an estimated ~50% global foundry share) at a Credit Suisse conference. CS analyst Randy Abrams reports TSMC (NYSE:TSM) has observed "a slowdown in the past 4-5 weeks due to US$ strength impacting European and emerging market purchasing power," and that inventories "will be a few days above seasonal exiting 1Q15." Pac Crest downgraded TSMC two weeks ago on inventory concerns.
- Following an Asian trip, Susquehanna's Chris Caso has argued there isn't too much to be alarmed about, though he admits forex could be an issue. "There’s mixed signals here and there. We weren’t picking up anything that was tremendously different across the supply chain. PCs were the weakest area. That’s really not a surprise."
- RF chipmakers Skyworks (SWKS -4.6%) and Qorvo (QRVO -2.1%), among 2014's best performers, are again selling off; peer Avago is off only slightly. Also seeing further profit-taking are Ambarella (AMBA -3%), NXP (NXPI -3.6%), Freescale (FSL -2.8%), Cavium (CAVM -3.2%), and STMicroelectronics (STM -4.5%).
- Among equipment makers, Axcelis (ACLS -2.9%), Aixtron (AIXG -3.6%), Veeco (VECO -3%), and Kulicke & Soffa (KLIC -2.5%) are declining. A selloff in European equities could be affecting Aixtron, NXP/Freescale, and STMicro.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
- Update: Credit Suisse, Goldman, and Deutsche have each offered thoughts on the chip selloff.
Mar. 26, 2015, 12:48 AM
- Though there have been a slew of reports stating Samsung (OTC:SSNLF) will be the main supplier for Apple's (NASDAQ:AAPL) A9 CPU (expected to go into the iPhone 6S/6S+ and next-gen iPad Air), "industry sources" tell Taiwan's Digitimes TSMC (NYSE:TSM) will "remain the major processor supplier for Apple in the second half of 2015."
- The world's biggest foundry will reportedly supply CPUs for the iPhone 6S and 6S+ using a next-gen 16nm FinFET process, and for a cheaper 4" "6C model" via its existing 20nm process (used to make the A8). Cowen previously reported Apple is working on a new 4" iPhone.
- The site qualifies its report by stating Samsung is also expected to be a 6S/6S+ supplier. Samsung recently began producing chips using its next-gen 14nm FinFET process, widely expected to be leveraged for A9 production. Meanwhile, A8 orders have done wonders for TSMC: The company has posted 30%+ Y/Y sales growth for several months in a row.
- In spite of a favorable Digitimes report last night as well (that one was about Q2 sales), shares fell 5.4% today amid a major chip stock rout - volume (32.3M shares) more than doubled a 3-month daily average of 13M. Barron's has reported hearing CFO Lora Ho made cautious comments about near-term demand at a Hong Kong Credit Suisse conference.
Mar. 25, 2015, 12:03 PM
- Chip stocks are particularly hard-hit (SOXX -3.6%) on a rough day for tech. The Nasdaq is down 1.3%, and the S&P 0.7%. Going into today, good earnings reports and ongoing M&A activity had led the Philadelphia Semi Index to rise 10% from its Jan. 30 close; the index remains up nearly 2x from its fall 2012 lows.
- AMD (AMD -7.2%) is a major decliner following a UBS downgrade. AMD rival/GPU giant Nvidia (NVDA -5.2%) and memory giant Micron (MU -3.7%) are also selling off, as are merger partners NXP (NXPI -3.8%) and Freescale (FSL -3.4%), RF chipmakers Avago (AVGO -5.2%), Skyworks (SWKS -5.3%), and Qorvo (QRVO -7.1%), LED/RF chipmaker Cree (CREE -4.1%), and high-flying video processor developer Ambarella (AMBA -4.3%).
- Other decliners include telecom chipmakers/ARM server CPU vendors Cavium (CAVM -4.8%) and AppliedMicro (AMCC -4.4%), microcontroller vendors Atmel (ATML -3.5%), Cypress (CY -5.5%), and STMicroelectronics (STM -3.5%), voice processor developer Audience (ADNC -3.7%), analog/mixed-signal chipmakers Linear (LLTC -3.7%), Maxim (MXIM -3%), and Intersil (ISIL -3.5%), FPGA maker Lattice (LSCC -3.9%), and mixed-signal/wireless charging IC developer IDT (IDTI -5.4%).
- Chip equipment, IP, and foundry providers are also underperforming. Big decliners include ARM (ARMH -4.4%), KLA-Tencor (KLAC -4.2%), Lam Research (LRCX -5.4%), ASML (ASML -4.1%), TowerJazz (TSEM -4.3%), Mattson (MTSN -4.5%), Ultratech (UTEK -4.7%), and Tessera (TSRA -6.1%). ASML has been downgraded to Hold by Banco Santander.
- TSMC (TSM -4.6%) is among the decliners in spite of a Digitimes report stating the foundry giant's sales are expected to rise 0%-5% Q/Q in Q2 - consensus is for a 2% drop - with strong Apple A8 CPU orders offsetting soft Qualcomm Snapdragon 810 orders.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Mar. 10, 2015, 7:22 PM
- TSMC (NYSE:TSM) had February revenue of NT$62.65B ($1.99B), -28.1% M/M due to seasonality and three fewer days, but up 33.8% Y/Y.
- Y/Y growth slowed from January's sky-high 69.4% and December's 39.9%, but remained above the levels seen from January-August 2014. February's numbers suggest the tailwind from Apple A8 CPU orders hasn't dissipated.
- TSMC's figures come a day after Pac Crest downgraded the foundry giant on a belief major customers are saddled with high inventories, and will be cutting orders. Shares fell 1.7% in regular trading, following both chip stocks and broader equity markets lower.
Mar. 9, 2015, 11:08 AM
- Noting inventory levels at major customers Qualcomm, Nvidia, Broadcom, Marvell, and MediaTek were near record highs in Q4, Pac Crest's Mike McConnell has downgraded TSMC (NYSE:TSM) to Underperform.
- McConnell argues TSMC's strong January sales (boosted by Apple A8 CPU orders) "do not reflect wafer order cuts yet from Qualcomm and MediaTek, as leading-edge customers are under contract to accept deliveries two months out." He also observes (as has been widely reported) Samsung is expected to handle at least some of Apple's A9 CPU production, and thinks a slowing pace for manufacturing process upgrades (below 20nm) will make it easier for TSMC's foundry rivals to keep up.
- Shares closed on Friday not far from a 52-week high of $25.32. They trade for a moderate 12x 2015E EPS.
Feb. 24, 2015, 11:34 AM
- ASML states major client TSMC (TSM +2.4%) has "successfully exposed more than 1000 wafers on an NXE:3300B EUV system in a single day." That's up sharply from the 637 wafers IBM processed last July over 24 hours using an ASML EUV system, and puts ASML on its way to hitting a 2016 target of 1,500.
- TSMC currently has two NXE:3300B systems, and plans to take shipment of ASML's next-gen NXE:3350B system. The foundry, which recently unloaded its ASML stake, has said it plans to use EUV systems, viewed as crucial to extending Moore's Law long-term, to manufacture 7nm chips. ASML has suggested TSMC could begin doing so by 2018.
- Intel, by contrast, has suggested it might manufacture 7nm chips without relying on EUV. Though the technology is still expected to be widely used by decade's end, progress has been a little slower than was expected a few years ago.
Feb. 10, 2015, 1:46 PM
- With Apple A8 CPU demand and orders from various Apple suppliers still providing a lift, TSMC's (NYSE:TSM) January sales rose 25.3% M/M and 69.4% Y/Y to NT87.1B ($2.76B) - Y/Y growth accelerated from December's 39.9%, and the 52.6% seen for the whole of Q4.
- Also: TSMC says it plans to invest more than NT$500B ($16B) at a manufacturing site in the Taiwanese city of Taichung. An upcoming expansion of a 300mm (12") wafer fab at the site is expected to create 5K jobs.
- The chip foundry giant recently set a 2015 capex budget of $11B-$12B, and plans to begin mass-production of chips using its 16nm FinFET (3D transistor) process in Q3. Its 10nm process, through which TSMC hopes to regain a manufacturing process lead Samsung and Globalfoundries are set to obtain this year through their 14nm process, is expected to enter mass-production late 2016 or early 2017.
- Shares are less than $1 away from their 52-week high of $24.49.
Taiwan Semiconductor Manufacturing Co., Ltd. engages in the research, development, manufacture and distribution of integrated circuit related products. It operates its businesses in two segments: foundry and other. Its foundry segment engages in the manufacturing, selling, packaging, testing and... More
Industry: Semiconductor - Integrated Circuits
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