TSMC: Apple Ramps But Revenue Growth Still Slows Down

We have been following the performance of t he world’s leading foundry and previously highlighted its importance to track performance of the key players and the underlying growth trends in technology space especially communications. TSMC announced its June-ending quarter results for 2015 and the results were slightly mixed

Some of the performance highlights during the quarter for TSMC were:

  • TSMC’s revenue growth slowed down from the huge ramp up which continued  last year.
  • TSMC revenues though still grew a healthy 12% annually reaching US$7 Billion ($205 Billion Taiwanese Dollars) during the quarter though offset by mixed performance of some of the customers and unfavorable exchange rate.
  • Gross margin remained an impressive 49% whereas operating margin dipped  sequentially to slightly under 38% level which points to lower capacity utilization and inventory builds/valuations
  • Communications wafer revenues continued to contribute to 62% of the total revenues and were up 29% YoY due to stronger demand from some key customers (e.g. Apple) slightly offset by some customers’ cautious inventory management
  • TSMC’s Communication revenues has more than tripled since the iPhone 4 launch in 2010 and industry smartphone growth (e.g. thanks to Qualcomm) which increased from 62M in Q2 2010 to almost 350 million units in Q2 2015
  • Industrial/Standard wafer applications contributed to almost a fourth of the total whereas Computer related wafer applications now contribute to only 7% to the revenue total, down 29% YoY

TSMC REvenues Q2 2015

 

  • TSMC revenues growth is also a good indicator of the health of its customers and vice-versa.
  • For e,g,: TSMC’s revenue growth curve has been exactly mimicking one of its biggest client Apple’s growth and to some extent also Qualcomm’s growth
  • However, this quarter we have seen TSMC’s growth drop has been sharper than iPhone shipments which could be due to underlying reasons:
    • Growth at TSMC’s another larger customer (Qualcomm) may not be that pronounced this quarter after losing some business at one of its biggest client Samsung
    • As a result, this points to focused inventory management mostly due to slower wafer orders as we have seen some heating issues associated with some of the Qualcomm chipsets
    • Thirdly, unfavorable exchange rate might also have offset the revenues growth, though this has been true for many quarters previously as well
    • So it remains to be seen, how Qualcomm’s loss at Samsung’s flagship S6 series and probably diversification of wafer orders to other foundries affect TSMC’s revenues in future

TSMC_Apple Q2 2015

 

  • From wafer process technology perspective, the 20nm process tech straightaway contributed to 20% of the total revenues in just first year of introduction and 28nm contributing to 27% of the revenues (down from 37% in Q2) also signalling strong iPhone 6 series sales
  • In total, the advanced wafer applications now contribute to almost half of the TSMC’s total revenues. This is good news for TSMC as it is rapidly reaching a consistent level of scale for the new nodes
  • Move to 16nm will be a drag on margins a bit and wafer pre-builds from inventory point of view though a much needed move to compete with Samsung’s rapid 14nm deployment
  • TSMC has already started volume production for 16nm
  • However, TSMC would also swiftly move to 10nm technology which it looks to ramp up volume production in late 2016 for customer shipments in first half of 2017 which is actually in-line with what Samsung is targeting as well with its 10nm play
  • The next two years will be an interesting fight between TSMC-Samsung on technology as well as customer wins perspective, though China’s UMC might also look to take away some share with growing share of Chinese brands in smart devices space globally

TSMC Revenues By Node Q2 2015