TSMC Drops as Weaker Smartphone Market Threatens Chip Demand

Taiwan Semiconductor Manufacturing Co. fell for a fifth day in Taipei trading, its longest losing streak in two years, after at least four analysts published reports saying a stronger U.S. dollar may weaken smartphone chip demand.

Shares dropped 2.1 percent to close at NT$142.50 in Taipei, widening the decline this week to 7.5 percent and wiping $9.5 billion off its market value. Taiwan’s benchmark Taiex, of which TSMC is the largest member, fell 1.2 percent today and 2.5 percent for the week.

TSMC sales of chips that drive smartphones might not be as strong as it had expected as demand for mobile devices softens, analysts at HSBC Holdings Plc and Citigroup Inc. wrote in reports downgrading the stock. The brokers join MayBank Kim Eng Group and Credit Suisse Group AG in predicting the global chip foundry industry will miss TSMC’s forecast for 12 percent growth.

“Based upon the strengthening of the U.S. dollar against many other currencies, which creates weakening purchasing power, there is a chance we will have to adjust down that 12 percent rate,” Elizabeth Sun, TSMC’s head of investor relations, told Bloomberg News by phone today.

TSMC gave that foundry growth forecast at its Jan. 15 investor conference, saying at the time “we are confident we can outperform the foundry revenue growth by several percentage points in 2015.” The maker of chips for Apple Inc. and Qualcomm Inc. is to hold its next IR conference on April 16.

China Demand

China smartphone unit growth will climb only 12 percent this year, from a previous 21 percent forecast, while sharp declines in currencies against the U.S. dollar will hurt demand in Western Europe and Latin America, Citigroup wrote in a report yesterday. The U.S. broker cut its full-year global smartphone growth forecast to 15.5 percent from 19 percent.

That smartphone downgrade and Samsung Electronics Co.’s strategy to use its own chips, instead of those from Qualcomm, prompted Citigroup to downgrade the Taiwanese company for the first time since at least October 2011, according to a report published yesterday. It now rates the stock neutral.

“TSMC has noted a slowdown in the past 4-5 weeks due to USD strength impacting European and emerging market purchasing power,” Randy Abrams, an analyst at Credit Suisse, wrote in a report on Wednesday. “As a result, the company’s near-term demand is being reduced across multiple nodes and end markets.”

Another risk for TSMC is its high concentration of sales from a few customers, which could offset potential gains in orders from Apple, Steven Pelayo, analyst at HSBC, wrote Friday, cutting the stock to hold.

“TSMC will have no choice but to cut its industry growth outlook,” Warren Lau, an analyst at MayBank KimEng, wrote yesterday. Lau is the most bearish of analysts who cover the stock with the only sell rating and target price of NT$102, according to data compiled by Bloomberg.

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