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Taiwan's TSMC Keeps Faith in Smartphones Amid Aggressive China Growth

Taiwan's TSMC Keeps Faith in Smartphones Amid Aggressive China Growth

By Reuters | Updated: 16 October 2014 20:02 IST

Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's largest contract chip manufacturer, said smartphones will contribute more than 50 percent to its revenue this year, up from high-40 percent in 2013, due to strong growth in China.

Despite slowing expansion in the smartphone market overall, TSMC is bullish on prospects for chip-hungry next-generation 4G phones in China where it said it was expanding capacity to stay competitive.

"China 4G smartphone sales and inventory build-up are very aggressive," TSMC President and Co-Chief Executive Officer Mark Liu said during the company's third-quarter earnings conference on Thursday.

Producing chips for smartphones such as the newest iPhones from Apple Inc helped the company notch record net profit and 29 percent growth in overall revenue in the third quarter versus a year ago, as well as 29 percent growth in revenue from communication devices from the second quarter.

Its NT$76.3 billion ($2.52 billion) profit in July-September beat expectations of T$72.9 billion from 21 analysts polled by Thomson Reuters. It expects fourth-quarter revenue will reach T$217 billion to T$220 billion, hitting a record for the fourth consecutive quarter.

The company's $8 earned per smartphone it expects to notch this year also beats the $7 it earned per phone in 2013.

"Momentum in smartphone and tablets as a growth driver for TSMC is expected to continue for another several years," Liu said.

(Also See: iPhone 6, iPhone 6 Plus Pre-Orders Reportedly Top 20 Million in China)

Slowing growth
The overall smartphone market is expected to grow 24 percent this year, according to researcher IDC, and moderate to 13 percent annually until 2017.

Apple, however, continues to register strong numbers for its iPhones, selling a record 10 million in the gadget's first weekend in stores.

According to Yuanta Securities analyst George Chang, orders from Apple as well as TSMC clients like Qualcomm Inc and Broadcom Corp, which also supply Apple, contribute more than 20 percent to TSMC's overall revenue.

But in an environment of changing tastes in consumer electronics, TSMC admitted that the breakneck growth hovering around 20 percent it has enjoyed over the past few years is not necessarily sustainable.

"You cannot expect 20 percent growth every year," said Chief Financial Officer Lora Ho, while predicting that the firm will enjoy still "double-digit" revenue growth in 2015 and 2016.

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