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
Oct. 16, 2014, 11:39 AM
- In addition to slightly beating Q3 estimates, TSMC (NYSE:TSM) is guiding for Q4 revenue of NT$217B-$220B ($7.22B-$7.33B), above a $6.96B consensus.
- Strong Apple orders appear responsible for the Q4 outlook: TSMC expects chips using its cutting-edge 20nm processes to account for over 20% of Q4 wafer revenue, up from 9% in Q3.
- For now, 20nm sales are heavily tied to shipments of Apple's A8 CPU, which is used in the iPhone 6/6 Plus and is believed to be in next-gen iPad models (to be unveiled today). Bloomberg reports TSMC has also landed orders for Apple's A8X CPU, expected to go into a 12.9" iPad. On the other hand, Samsung is believed to be the supplier for the 14nm A9 CPU, expected in next year's iPhones/iPads.
- Q3 gross margin was 50.5%, at the high end of a 48.5%-50.5% guidance range. However, GM is expected to fall to 48%-50% in Q4.
- TSMC's mainstay 28nm processes made up 34% of wafer revenue, down slightly from Q2's 37%. Qualcomm, MediaTek, and other mobile processor vendors rely heavily on TSMC's 28nm offerings.
- Also: TSMC now expects its 16nm FinFET process to reach mass-production in Q2; it previously forecast Q3. The process will square off against 14nm offerings from Samsung and Globalfoundries; Apple's A9 CPU is expected to use Samsung's 14nm process.
- Q3 results, PR
Oct. 16, 2014, 8:23 AM
- Taiwan Semiconductor Manufacturing (NYSE:TSM): Q3 EPS of $0.49 beats by $0.01.
- Revenue of NT$209.05B (+28.6% Y/Y).
Oct. 15, 2014, 5:30 PM
Oct. 10, 2014, 1:42 PM
- Following Microchip's warning and related prediction of a chip industry correction, Goldman's James Covello thinks there's 15%-20% downside in industry names.
- Covello, who lowered his industry view to Cautious in August: "The last time Microchip negatively preannounced was October 15, 2012 (3% sales miss). Between October 1 and December 31, Street 2013 sales estimates for the Semi group were revised down 6% on average."
- He adds several datapoints suggest the industry has been overheating. Among them: Semi revenue growth has outpaced end-market growth, and supply chain inventory dollars rose 3% more than their 3-year average in Q2.
- "Nobody will be spared," predicts Hedgeye's Craig Berger. Benchmark's Gary Mobley observes 5 of the 6 chip stocks to have made Q3 pre-announcements have thus done so to the downside.
- Worth noting: Mobile chipmaker Silicon Motion (SIMO -8.9%) is the one chipmaker to have positively pre-announced. It might not be a coincidence that Microchip has relatively low mobile exposure.
- Observing U.S. macro data remains positive even as China and Europe soften, Longbow's JoAnne Feeney remains bullish long-term on select names. However, she has cut her short-term rating on Linear (LLTC -3.8%) to Sell, and removed IDT (IDTI -7.1%) from her trading long list.
- In addition to the names previously mentioned, the following chip stocks are seeing steep losses: AMD -5.1%. FCS -13.6%. NXPI -11.2%. CODE -11%. LSCC -9.6%. SIMG -8.1%. IPHI -7.7%. ISIL -9.5%. CY -6.9%. RMBS -7.1%. QUIK -5.7%. SQNS -5.1%. IMOS -6.5%.
- Foundries and contract manufacturers are also selling off: TSM -3.9%. UMC -2%. SMI -2.4%. SANM -11.7%. FLEX -6.8%. JBL -4%.
- Chip ETFs: SOXX, SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Oct. 6, 2014, 9:25 AM
- Micron (NASDAQ:MU) is under pressure after Samsung announced it's spending $14.7B to build a giant new chip plant. Construction will start in 1H15, and is expected to be finished in 2H17.
- Electronics CEO Kwon Oh-hyun: "Our investment into the new fabrication plant will influence the shaping of Samsung’s future semiconductor business." Samsung (like peers) has seen its mobile DRAM and NAND flash sales grow rapidly over the last two years.
- The company says capacity could be allocated to either memory or logic IC manufacturing, depending on demand. Samsung is the world's biggest DRAM and NAND flash manufacturer, but also has a growing foundry business that's hoping to grab share following next year's 14nm transition.
- Micron sold off in July after Samsung hiked its 2014 DRAM production forecasts, but eventually recovered.
- Aside from Micron, Samsung's plant could have an impact on NAND giant SanDisk (NASDAQ:SNDK), foundry kingpin TSMC (NYSE:TSM), and DRAM/NAND rival SK Hynix (OTC:HXSCL -5.1% in Seoul)
- Update (10:01AM): SanDisk is now down 1.5%. Micron is down 2.5%. TSMC is up 0.3%.
Sep. 30, 2014, 7:47 PM
- TSMC (NYSE:TSM) has launched a chip manufacturing tech platform meant specifically for ICs going into low-power embedded devices (the proverbial Internet of Things) and wearables.
- Supported manufacturing process nodes range from the dated 180nm and 90nm (useful for chips with RF circuitry and/or embedded flash) to the next-gen 16nm (FinFET). TSMC claims the processes can lower operating voltages by 20%-30% relative to its prior low-power solutions. Risk production is expected to start in 2015.
- TSMC already claims a long list of high-volume mobile chip clients - it includes Qualcomm, Broadcom, MediaTek, Spreadtrum, Nvidia, Cirrus Logic, and Apple. Many of those clients are also aggressively targeting the embedded/wearable space.
Aug. 15, 2014, 6:27 PM
- With the company dedicating a large chunk of capacity to producing Apple's A8 CPU, TSMC's (NYSE:TSM) Q4 capacity is "almost fully booked," sources tell Digitimes. Clients short on capacity are reportedly being urged to book in advance.
- The site adds a number of clients, including Qualcomm, Himax, and MediaTek, have reported seeing tight supplies. Qualcomm has already struck a deal with China's SMIC (NYSE:SMI) to sidestep TSMC's supply constraints. UMC, which has been ceding share to TSMC in recent years, could also benefit.
Jul. 16, 2014, 5:30 PM
Jul. 16, 2014, 2:24 PM
- In addition to beating Q2 estimates, TSMC (TSM -6.4%) has guided for Q3 revenue of NT$206B-NT$209B ($6.8B-$6.9B), above a $6.58B consensus.
- However, on the CC (transcript), the foundry giant stated its next-gen 16nm FinFET (3D transistor) process won't see volume production until Q3 2015, and that its 2015 16nm share will be smaller than the 14nm share of "a major competitor."
- That's an apparent reference to Samsung and Globalfoundries, who are partnering to launch 14nm FinFET production next year, and have reportedly landed orders from Qualcomm and Apple.
- TSMC promises to regain 16nm/14nm share from 2016 onwards, and notes it will maintain a huge share of 20nm foundry output. The company also asserts its 16nm FinFET+ process will have performance and power advantages over Samsung/Globalfoundries' 14nm process.
- Also: Multiple analysts pressed TSMC about supply chain inventories - they're slightly above seasonal norms, and "cautious inventory management" is expected in 2H - and a forecast for its 20nm sales (boosted by Apple) to account for over 20% of Q4 wafer revenue, up from 10% in Q3. The outlook is being taken as a sign non-20nm sales will decline sharply in Q4.
- Gross margin rose 80 bps Y/Y in Q2 to 49.8%, and op. margin 160 bps to 38.6%. In Q3, GM is expected to be in a range of 48.5%-50.5%, and op. margin a range of 38.5%-40.5%.
- UMC (UMC -3.1%) is following TSMC lower ahead of its July 30 Q2 report.
Jul. 16, 2014, 7:18 AM
- Taiwan Semiconductor Manufacturing (NYSE:TSM): Q2 EPS of $0.38 beats by $0.01.
- Revenue of NT$183.02B (+17.5% Y/Y)
Jul. 11, 2014, 5:22 PM
- TSMC (TSM -0.6%) had June revenue of NT$60.3B ($1.99B), -0.7% M/M (hurt by one less day) and +11.7% Y/Y. Y/Y growth slipped from May's 17.4%.
- Total Q2 revenue was NT$183B ($6.04B), +16% Y/Y but slightly below a $6.06B consensus. Full Q2 results and Q3 guidance are due on July 16.
- Shares edged lower on the news. They had risen to new 52-week thanks to a chip stock rally and expectations of strong Apple orders.
Jul. 10, 2014, 6:05 PM
- Taiwan's Business Weekly reports Apple (AAPL -0.4%) has already put in orders for 68M iPhone 6 units. The report follows a May Morgan Stanley note indicating iPhone 6 orders are up 20% relative to 5S orders.
- Cirrus Logic (CRUS -1.1%) would benefit from strong iPhone build activity. Orders, of course, can end up being drastically increased or pared back due to end-user demand.
- IDC estimates U.S. Mac unit shipments fell 1.7% Y/Y in Q2 to 1.68M. With the U.S. PC market growing 6.9%, Apple's share fell 90 bps to 10% (#4 overall). Revenue share is doubtlessly higher.
- Parks Associates estimates Roku accounted for 46% of 2013 U.S streaming set-top (non-pay-TV) sales, and Apple TV 26%. A survey of U.S. broadband households with at least one such set-top found 44% used a Roku box the most, and 26% used Apple TV the most.
- The WSJ backs up several other reports (previous) stating TSMC (TSM +2.3%) has begun producing an Apple CPU (likely the A8) using the foundry's cutting-edge 20nm process. More interestingly, the paper reports Apple and TSMC have begun work on testing CPUs to be made using a 16nm process.
- TSMC plans to launch a 16nm process (called FinFET+) next year that delivers major performance/power efficiency gains relative to its 20nm process. Digitimes has reported TSMC is working on a version of FinFET+ "tailored to Apple's requirements," as part of its efforts to manufacture Apple's A9 CPU.
- Nonetheless, Samsung is still expected to land a portion of Apple's A9 orders, possibly with the help of its upcoming 14nm FinFET process.
Jul. 3, 2014, 3:39 PM
- Qualcomm (QCOM +1%) has struck a deal with SMIC (SMI +2.5%) to have the Chinese foundry to produce 28nm Snapdragon processors. SMIC has previously manufactured (less demanding) power management and connectivity ICs for Qualcomm.
- The deal comes ahead of Apple/Samsung's fall hardware refreshes, and undoubtedly has much to do with tight 28nm capacity at main foundry partner TSMC (TSM +1.5%). Digitimes has reported Qualcomm and MediaTek (among others) are looking to secure 28nm capacity from SMIC, UMC, and Globalfoundries due to TSMC's supply constraints.
- Digitimes states Qualcomm has booked over half of SMIC's 28nm capacity, and that MediaTek will be placing orders of its own. The site has also reported Qualcomm has placed orders with Globalfoundries and Samsung for their next-gen 14nm process (set to go live in early 2015).
- TSMC's efforts to ramp 20nm production for Apple could be contributing to its 28nm crunch. JPMorgan expects TSMC to produce 120k-130k 20nm wafers for Apple in Q3, up from just 30K-40K in Q2. It sees Apple respectively making up 13% and 15% of TSMC's Q3 and Q4 revenue vs. just 4% of Q2 revenue.
- Yesterday: Qualcomm buys WiGig chipmaker Wilocity
Jul. 1, 2014, 5:55 PM
- Digitimes reports Samsung (SSNLF, SSNGY) and Globalfoundries have landed orders from Qualcomm and Apple for chips to be made using their next-gen 14nm FinFET (3D transistor) process. Production is expected to start in early 2015.
- Samsung and Globalfoundries inked a FinFET licensing deal this spring in an effort to challenge TSMC's (TSM +2.7%) foundry market hegemony. Qualcomm is a top TSMC client, and Apple (though historically relying on Samsung) is reportedly relying on TSMC to help make its upcoming A8 and A9 CPUs.
- TSMC, which has had an edge in ramping 28nm and (more recently) 20nm chip production, is responding to Samsung/Globalfoundries' challenge with plans to launch a 16nm FinFET process by year's end, and (more importantly) roll out its low-power 16nm FinFET+ process in early 2015.
- TSMC claims 16nm FinFET+ chips will consume 30% less power than 16nm FinFET chips at the same clock speed, and offer 40% better performance than comparable 20nm chips.
- Digitimes states TSMC plans to launch a FinFET+ process "tailored to Apple's requirements," as part of its efforts to manufacture the A9.
Jun. 23, 2014, 5:52 PM
- Taiwan's Economic Daily News reports Foxconn is in the midst of hiring 100K workers to help ramp iPhone 6 (AAPL -0.1%) production. Fellow ODM Pegatron is also said to be ramping iPhone-related hiring.
- Foxconn is said to be handling 70% of production for the iPhone 6, which is expected to tap into pent-up demand for bigger iPhones. Apple is reportedly trying to get carriers to agree to a price hike. Cirrus Logic (CRUS +2.8%) has closed higher following the report.
- China Times reports TSMC (TSM -1.4%) is expected to produce 120M Touch ID fingerprint sensors this year, up over 3x from last year. Next-gen iPad models are expected to support Touch ID, which was just opened up to iOS developers.
- Following an Asian trip, Pac Crest believes the 5.5" iPhone 6 will support optical image stabilization (OIS). The firm also backs up VentureBeat by expressing confidence the iPhone 6 will support wireless charging and NFC.
- Sony, LG, and Nokia have included OIS in high-end smartphone models, and Samsung is expected to do so in upcoming phones. Pac Crest's report follows the release of API data suggesting iOS 8 supports manual camera controls.
- Update: Bloomberg reports iPhone 6 mass-production will start in July, and that both the 4.7" and 5.5" models might arrive in September.
Jun. 11, 2014, 11:22 AM
- Bloomberg's report follows an April WSJ report calling Globalfoundries "the lead candidate" to buy IBM's (IBM -0.6%) chip manufacturing/foundry ops. Notably, Globalfoundries is said to be more interested in Big Blue's chip engineers and IP than its relatively old wafer fabs.
- A source states the unit has been losing as much as $1.5B/year. Its Q1 sales fell 16% Y/Y amid continued share losses to Globalfoundries, Samsung, and foundry giant TSMC (TSM -0.5%).
- Nonetheless, the business claims high-profile foundry clients such as Cisco and Juniper, and has a history of leading the way in mass-producing new chip technologies/materials, such as silicon-on-insulator (SOI) and silicon germanium (SiGe).
- That could help Globalfoundries as it tries to gain ground against TSMC, which has a long list of blue-chip mobile processor, GPU, and FPGA clients.
- The WSJ's report stated the unit has received $1B+ bids - less than the $2B+ IBM was initially seeking.
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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