IPhone chipmaker TSMC lifts 2020 outlook expecting big 5G boost

Taiwan Semiconductor Manufacturing Co (TSMC) raised its 2020 revenue forecast for a second time this year, reflecting strong demand for 5G mobile devices like Apple Inc’s new iPhones and high-performance computing in the post-pandemic era. The world’s largest contract chipmaker now expects 2020 sales to climb more than 30% in dollar terms, compared with a previous forecast of growth of more than 20%. For the current quarter, revenue should be between US$12.4 billion ($16.9 billion) and US$12.7 billion, while gross margin will be between 51.5% and 53.5%, CFO Wendell Huang told analysts.

The main chipmaker for Apple’s iPhones continues to invest in expanding and upgrading technology, anticipating strong demand from 5G smartphones as well as for server chips as countries gradually emerge from the Covid-19 pandemic. Executives said on Oct 15 they expect capital spending of about US$17 billion in 2020, the high end of its previously forecast range.

Previously disclosed monthly numbers showed sales climbed to a record $16.9 billion in the three months to September, boosting profit by a higher-than-expected 36%. TSMC’s business typically kicks into high gear in the months before Apple unveils its new phones and the holiday season. It also received a boost during the quarter as second-largest customer Huawei Technologies raced to stockpile supplies before a US ban on shipments to the Chinese telecom giant came into effect last month.

“Covid-19 is accelerating digital transformation, while 5G and HPC applications continue to drive” demand, CEO C.C. Wei said at a briefing. “Strong demand for our industry-leading 5nm technology” will drive growth through the fourth quarter, he added.

Third-quarter net income rose to an all-time high of NT$137.3 billion ($6.5 billion), versus the average analyst estimate of NT$126 billion. Gross margin improved slightly to 53.4%, topping the company’s own guidance.

The most-advanced 5nm process technology — used to make Apple’s A14 chips — accounted for about 8% of total revenue during the quarter, while 7nm and 16nm made up 35% and 18%, respectively. By business segment, TSMC’s smartphone business expanded 12%, while HPC posted the strongest growth, jumping 25%.

Overall inventory for customers, including smartphone makers, will remain above seasonal levels for some time due to lingering concerns over the reliability of supply chains, TSMC said. Still, executives sought to allay concerns over inventory levels, citing expectations that more manufacturers will roll out new 5G devices and an acceleration in technology adoption amid shelterin-place measures.

On Oct 13, Apple unveiled its latest iPhone lineup, saying two new models will come out on Oct 23 while two other models will arrive three weeks later. The Cupertino, California-based company expects to build at least 75 million new 5G iPhones this year, roughly in line with its previous flagship launch, Bloomberg News has reported.

TSMC shares have surged roughly 83% from their March lows amid signs that the company is bouncing back from the worst of the coronavirus-induced disruptions.

”Market players have anticipated 5G being a major growth driver,” GF Securities analyst Jeff Pu says. TSMC’s fourth-quarter guidance is about in line with the average analyst estimates, while a bit lower than buy-side expectations, he adds. — Bloomberg