What can we learn from TSMC’s Quarterly Results

TSMC announced its Q3 2014 results and its worth highlighting about the company which is the world’s largest contract chip manufacturer and has been churning out hundreds of millions semiconductor chipsets across several technology applications

The Taiwanese company has been riding high on the rising semiconductor content in communications space especially smartphones capturing a lion share of top-tier clients.

During the quarter for TSMC:

  • Revenues jumped 29% annually to reach almost US$7 Billion during the quarter with gross margins climbing up above 50%, a record
  • Operating Margin also crossed 40%, a record in itself. However, ramping early 20nm production could dilute the margins to a slight extent for near to mid-term which could be offset by 28nm technology’s growing scale
  • The strong wafer demand for mobile related applications at TSMC points to a robust smartphone chips sell-in orders from its customers to satisfy demand in growth markets such as China and India coupled with 3G to 4G migration and for upcoming holiday season in mature markets
  • The communications applications business now contributes to a record 59% of the total TSMC revenues.up from 40% level since the first Apple iPhone traction in Q1 2008
  • In contrast, the computers fell from 34% level revenue contribution to a mere 9% contribution in Q3 2014, highlighting the slowing and flat demand in computers space, shift in focus towards communications plus maybe some loss of business to competition such as Intel or Global Foundries
  • Meanwhile, consumer applications business have declinedd but well offset by industrial applications related wafer demand almost switching the contributions over the last 27 quarters

  • Fabless customers continue to contribute to 87% of the TSMC revenues compared to 84% in the same quarter last year, again can be attributed to growing demand from customers in consumers space especially Qualcomm, MediaTek
  • Another important trend which we can learn from TSMC’s performance is the evolution of wafer manufacturing process technology and where it is now.
  • 28nm and below technology now contribute to almost 43% of the total revenues. During the quarter TSMC debut 20nm process technology which straight away contributed to 9% of the total revenues just in its first quarter compared to 2% of total for 28nm in its first quarter in Q4’11 and 1% for 40nm in Q1 2009
  • This shows how quickly technology is ramping up compared to previous generations, though customers such as Apple and Qualcomm helps in accelerating the trend. Apple is in for big western and Chinese holiday season quarters as demand for Apple iPhone is sky high and TSMC will be one of the beneficiaries

  • While Intel has made its foundry ambitions clear and Samsung-Global Foundries‘ strategic alliance will challenge TSMC in future, though the sub- 20nm process output’s performance, capacity will be the key to holding its customers together
  • Secondly, the current battleground is between Intel’s 22nm vs. TSMC’s 20nm though scale and customer base is very different for both in smartphones applications, TSMC has the edge here
  • However, the next battleground will shift towards Intel’s 14nm vs TSMC’s 16nm ramp ups next year and how it proliferates into smartphones, tablets, PCs and eventually wearables/IoT applications

Overall, the competition in foundry space is shaping up nicely and TSMC will have to work hard to keep the current customers happy to continue the momentum and expanding revenues in lucrative communication applications space.