TSMC forecasts sales to fall 22% sequentially in Q1

Taipei, Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, said Thursday its consolidated sales for the first quarter of this year could fall 22 percent from a quarter earlier in reflection of a slower global economy and inventory adjustments in the industry.

In an investor conference, Lora Ho senior vice president and chief financial officer of TSMC, said with the global economic growth momentum moderating to push down demand, TSMC is expected to post US$7.3 billion to US$7.4 billion in consolidated sales for the January-March period, down 22 percent from the previous quarter.

The sequential fall caught the market off guard as an earlier estimate pointed to a fall of 10-20 percent, indicating the semiconductor giant has turned more cautious about the business outlook.

Ho said inventory adjustments are even likely to continue into the middle of this year.

Before the investor conference started, TSMC reported NT$99.98 billion in net profit for the fourth quarter, up 12.3 percent from a quarter earlier on sales of NT$289.77 billion (US$9.40 billion), which were up 11.3 percent from the third quarter.

In 2018, it posted NT$351.13 billion in net profit, a record high, up 2.3 percent from a year earlier, with earnings per share at NT$13.54, compared with NT$13.23 in 2017.

For the first quarter of this year, TSMC's gross margin, which reflects the difference between revenue and cost of goods sold, is expected to range between 43 and 45 percent, down 2.7-4.7 percentage points from a quarter earlier, Ho said.

Ho added that its operating margin -- the difference between sales, the cost of goods sold and operating expenses -- is expected to range between 31 and 33 percent in the first quarter, down from 37 percent a quarter earlier.

Also in the investor conference, TSMC Chief Executive Officer and Vice Chairman C.C. Wei said he feared the company will not be able to achieve an earlier goal of posting a 5-10 percent increase in sales for 2019. On the sidelines of the conference, Ho told journalists that the growth rate may hit only 1-3 percent this year.

Wei said the global semiconductor industry, excluding memory chip production, will likely record only a 1 percent increase in sales for 2019, compared with an 8 percent rise in 2018.

As for the pure foundry industry, Wei said, sales this year could remain unchanged from a year earlier, falling behind a 6 percent increase in 2018.

Due to the weakening demand which is expected to send TSMC's capacity utilization rate lower, the chipmaker has decided to lower its capital expenditure target to a range of US$10 billion to US$11 billion from its previous planned range of US$10 billion to US$12 billion.

Out of the 2019 capex, 80 percent will be used in development of advanced 7 nanometer, 5nm and 3nm processes, 10 percent for high-end packaging and testing technology, and the other 10 percent in special processes, TSMC said.

While TSMC cut its sales forecasts for the first quarter and even for the entire 2019, the chipmaker said it remains confident in its 7nm technology, expecting chips made on the process to account for 25 percent of its total sales in 2019, up from only 9 percent in 2018.

TSMC said sales generated from chips used in the Internet of Things could rise at a double-digit pace this year, while revenue generated from chips used in high performance computing, including applications in mining devices used for cryptocurrency transactions, could fall by double digits.

Although TSMC is cautious about the business outlook for 2019, the company is expected to raise its cash dividend payout since its net profit hit a record high in 2018. Last year, the chipmaker issued NT$8 in cash dividend per share, a new high in the company's history.

The cash dividend payout will be decided in a board meeting scheduled for February.

Source: Focus Taiwan News Channel