TSMC Predicts Better-Than-Estimated Sales on Smartphone Chips

Taiwan Semiconductor Manufacturing Co., the world’s largest contract producer of chips, forecast sales surpassing analysts’ estimates as demand for components used in phones and tablets continues to outstrip expectations.

First-quarter revenue will be NT$127 billion ($4.4 billion) to NT$129 billion, the Hsinchu, Taiwan-based company said today. That compares with the NT$124 billion average of 18 analyst estimates compiled by Bloomberg.

TSMC’s fourth-quarter profit jumped 32 percent as demand for mobile devices from Apple Inc. and Samsung Electronics Co. spur semiconductor sales. The chipmaker also intends to boost capital spending to a record $9 billion this year from about $8.3 billion last year to support the manufacture of products including new 28 nanometer technology units.

“The growth of 28-nanometer this year will be greater than the total growth in the company,” Chairman and Chief Executive Officer Morris Chang told investors in Taipei today. TSMC intends to use 88 percent of spending this year on equipment for the latest technology, measuring 28 nanometers or less, he said.

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.

Mobile Demand

Sales in the first quarter will benefit from mobile-device makers accelerating the introduction of new products, Chang said. Mobile devices will continue to win market share from traditional notebook computers, he said.

“We’re in the sweet spot of the smartphone growth curve, which benefits TSMC,” said Steven Pelayo, a Hong Kong-based analyst for HSBC Holdings Plc, who rates the stock overweight.

Fourth-quarter net income rose to NT$41.6 billion, in line with the average of 22 analysts’ estimates compiled by Bloomberg. Consolidated revenue jumped 25 percent to NT$131 billion, matching the top end of the company’s guidance.

The chipmaker, whose clients include Broadcom Corp. and Texas Instruments Inc., was little changed at NT$99.30 at the close of trading in Taipei before the earnings announcement. It has risen 31 percent in the past 12 months.

Revenue growth this year will be offset by higher tax rates in Taiwan. The effective tax rate in 2013 and 2014 will climb to about 14 percent from 8.7 percent in 2012, Chief Financial Officer Lora Ho said.

TSMC expects revenue in the fabless semiconductor industry will climb 9 percent this year, Chang said today. The made-to-order foundry industry will climb 7 percent, with TSMC’s own growth to exceed that figure, he said.

               4Q                            1Q
               Company   Company   Analyst   Company   Analyst
               Actual    Forecast  Estimate  Forecast  Estimate
Sales NT$bln   131       129-131   131       127-129   124
Gross Margin%  47.2      45~47     46.4      43.5~45.5 44.2
Op Margin%     35.2      33~35      --       31.5~33.5 --

Outlook based on expected average exchange rate of NT$28.90 per
U.S. dollar.

Sources: TSMC, Bloomberg