TSMC Forecasts Record Sales, Spending on Demand for Chips

Taiwan Semiconductor Manufacturing Co. (2330), the world’s largest contract manufacturer of chips, forecast record sales and spending driven by demand for mobile- device components.

Second-quarter revenue will be as much as NT$128 billion ($4.4 billion), beating the NT$118 billion average of 18 analyst estimates compiled by Bloomberg. Capital spending in 2012 will be $8 billion to $8.5 billion, higher than the $6 billion budgeted earlier, the Hsinchu, Taiwan-based company said.

TSMC’s 28-nanometer technology, its most advanced, was fully booked for the quarter with client Qualcomm Inc. (QCOM) saying it cannot get enough supply of chips. That demand, spurred by the popularity of mobile devices including Apple Inc.’s iPhone and Samsung Electronics Co.’s Galaxy, prompted Chairman and Chief Executive Officer Morris Chang to raise his spending plan by as much as 42 percent this year to add capacity.

“We see very strong growth for the company for the next few years,” Chang, 80, told investors today announcing the record spending budget. “For some things, you just have to do it despite all the surprised expressions around you.”

‘Roaring Success’

The company’s 28-nanometer technology is a “roaring success” with orders coming in stronger than expected and surpassing both the company’s and clients own forecasts, Chang said. Demand is driven by mobile products with TSMC planning to rollout its next 20-nanometer node at the end of 2012, he said.

“Everyone who makes chips for smartphones doesn’t have their own factories, which means they need TSMC,” Steven Pelayo, who rates the stock overweight at HSBC Holdings Plc, said before the earnings. “If you’re spending so much then you’re confident on future growth, yet the higher spending also means higher depreciation costs which impacts profit margins.”

TSMC today reported first-quarter net income of NT$33.5 billion, surpassing the NT$29.9 billion average of 16 analysts’ estimates compiled by Bloomberg. Gross margin and operating margin also exceeded estimates.

Smaller rival United Microelectronics Corp. (2303), also based in Hsinchu, said yesterday it won’t raise capex from $2 billion to meet demand. Its 28-nanometer facility will commence volume production in the second half, it said, a year later than TSMC.

One nanometer, equal to one-billionth of a meter, measures the size of connections within a chip. A lower number implies more advanced technology, allowing semiconductors to be smaller and more powerful.

Gross Margin Impact

Higher electricity prices and costs for boosting output at 28-nanometer capacity will cut gross margin this quarter, to be offset by improvements in productivity and economies of scale benefits, Chief Financial Officer Lora Ho said today. Higher depreciations costs from the increased spending will also affect gross margin throughout the year, she said.

“There will be some short-term impact to this year’s profitability,” Ho said.

The shortfall in chip output reflects heavy demand and not manufacturing glitches Qualcomm Chief Executive Officer Paul Jacobs said last week. The company is adding suppliers, which will ease the supply shortage by the fourth quarter, he said.

Apple, the world’s largest smartphone maker, on April 24 posted profit and revenue that surpassed estimates as it sold more iPhones than analysts had estimated amid strong Asia growth. TSMC supplies chips used in handsets by Apple, Samsung and HTC Corp. (2498)

Chip market growth this year will exceed the 2 percent estimate made in January, with TSMC likely to outpace that, Chang said, without elaborating.


               1Q                            2Q
               Company   Company   Analyst   Company   Analyst
               Actual    Guidance  Estimate  Guidance  Estimate
Sales NT$bln   105.5     103-105   104.7     126-128   118.2
Gross Margin%  47.7      42.5~44.5 43.8      47~49     45
Op Margin %    33.6      28.5~30.5 --        34.5~36.5 --


Source: TSMC, Bloomberg

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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