TSMC Foresees Second Straight Sales Decline Amid Mobile Gloom

  • Weakness in high-end demand offset by emerging markets growth
  • Long-term growth prospects are lower in a slowing chip market

Taiwan Semiconductor Manufacturing Co. forecast its second consecutive fall in quarterly sales and warned of weak chip and smartphone demand from a slowing global economy.

The world’s largest contract chipmaker is predicting another decline in revenue after fourth-quarter sales dropped for the first time in four years. Company founder and Chairman Morris Chang told investors Thursday he was no longer sticking to a 2014 forecast for five years of 10 percent annual growth.

TSMC, which makes chips for Apple Inc. iPhones, joins suppliers and smartphone makers in grappling with a slowdown in handset demand as the Chinese market cools. Analysts estimate sales growth of more than 8 percent for 2016, the slowest since 2011.

“I had expected the first quarter to be stronger than what we’re forecasting now,” Chang said. “I am not repeating my pledge, my prediction, that ’17, ’18, ’19 will continue to grow at 10 percent.”

Dim Outlook

Chang’s comments came after the Taiwanese company forecast first-quarter revenue of NT$198 billion ($5.9 billion) to NT$201 billion, compared with analysts’ average estimate for NT$200.2 billion.

A reduction in demand for high-end smartphones will be offset by a recovery in China and other emerging markets in the first quarter, co-Chief Executive Officer Mark Liu told investors.

Chinese government data released this week suggested the iPhone fared better than expected in the final quarter of 2015. Shipments of smartphones not using Google Inc.’s Android software, the vast majority of which would be iPhones, increased by about 33 percent from a year earlier, according to analysts’ calculations.

Growth however will return starting next quarter, with full-year sales and operating profit to grow 5 percent to 10 percent, Chang said. The company said it is now considering an increase in its cash dividend for 2016.

“The strong US dollar environment and volatile financial markets that dampened demand for overall semiconductors last year may continue for some time,” Liu said. “We expect our customers will likely remain cautious with their inventory control.”

By Nanometers

TSMC’s sales forecast came after the Taiwanese company reported fourth-quarter net income fell 9 percent to NT$72.8 billion, beating the NT$68.5 billion average of 26 analysts’ estimates compiled by Bloomberg. Sales, reported earlier, fell 8.5 percent in local currency and 13.7 percent in U.S. dollar terms during the period.

Global chip industry growth will be about 2 percent this year, while the foundry sector will climb 5 percent, TSMC forecast. TSMC is targeting capital spending of $9 billion to $10 billion this year, up from $8.12 billion last year as it continues to upgrade its manufacturing capabilities.

TSMC’s most advanced, higher-margin 16-nanometer and 20-nanometer technologies accounted for a combined 24 percent of sales in the fourth quarter, the company said. It expects gross margin, a key metric that assesses revenue less the cost of goods sold including depreciation, to be 47 percent to 49 percent this quarter, compared with estimates for 47.6 percent.

Before it's here, it's on the Bloomberg Terminal.