TSMC Climbs Most Since September After Profit Beats Estimates

  • Emerging markets growth offsets waning high-end demand
  • Apple supplier benefits from strong iPhone sales in China

Taiwan Semiconductor Manufacturing Co. rose the most in four months after the contract manufacturer of chips for Apple Inc. posted fourth-quarter profit that beat analysts’ estimates.

Shares rose 4.2 percent, their biggest single-day gain since Sept. 9, to finish at NT$137 in Taiwan trading. Before Friday’s rally, the stock was down more than 8 percent this year, a bigger decline than the benchmark index’s.

TSMC, maker of chips for the iPhone and other devices, posted sales for the quarter that beat estimates as a move to more sophisticated manufacturing technology helped boost margins and counteract a global slowdown in demand. Apple in October forecast record revenue for the December quarter, fueled by customer upgrades and strong sales in China, even with the country’s economic slowdown.

“Despite macro concerns, TSMC is bullish on advanced tech,” Daiwa Capital Markets analysts Rick Hsu and Olivia Hsu wrote in a report after the company announced earnings, reiterating their buy recommendation. “This corroborates our view of TSMC expanding its 16nm addressable market to reclaim market dominance,” they wrote, referring to TSMC’s higher-margin 16-nanometer manufacturing technology.

Chinese Slowdown

Fourth-quarter net income was NT$72.8 billion ($2.2 billion), beating the NT$68.5 billion average of 26 analysts’ estimates compiled by Bloomberg. Profit declined 9 percent from the year earlier -- the first drop in the fourth quarter since 2011.

A slowing global economy prompted TSMC Chairman Morris Chang to forecast a second consecutive drop in quarterly sales on weak chip and smartphone demand. Chang told investors Thursday he was no longer sticking to a 2014 forecast for five years of 10 percent annual growth.

TSMC 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.”

Chang’s comments came after the Taiwanese company forecast first-quarter revenue of NT$198 billion to NT$201 billion, compared with analysts’ average estimate for NT$200.2 billion and down from more than NT$222 billion a year earlier.

“The strong U.S. dollar environment and volatile financial markets that dampened demand for overall semiconductors last year may continue for some time,” co-Chief Executive Officer Mark Liu told investors. “We expect our customers will likely remain cautious with their inventory control.”

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 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.

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