TSMC Forecasts Bullish End to 2021 on Strong Chip Demand

(Bloomberg) — Taiwan Semiconductor Production Co. projection fourth-quarter sales and margins that went beyond some experts’ quotes, as need for chips remained robust in the face of getting worse snarls in the supply chain.

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The world’s No. 1 foundry stated Thursday it anticipates profits of as much as $15.7 billion in the 3 months ended December, assisting full-year sales grow by about 24% in dollar terms. Gross margin might be as high as 53%, with executives restating a long-term target of more than 50%. Experts had actually anticipated typical sales of $15.3 billion and margin of 51.4% for the December quarter.

TSMC’s production will likely stay extended through 2022, as need for semiconductors that power whatever from automobiles to the current mobile phones drove preparations to tape highs and assisted fill order books. In order to protect products, more clients are now paying in advance, compared with simply “one or two” previously. However capability restraints have actually restricted the Taiwanese business’s capability to totally profit from the boom, even as it reserved $100 billion to grow output over 3 years and revealed prepare for a brand-new plant in Japan.

“We expect TSMC’s capacity to remain very tight in 2021 and throughout 2022,” Chief Executive Officer C.C. Wei said on a conference call. “While the short-term imbalances may or may not persist, we believe our technology leadership will enable TSMC to capture the strong demand for our advanced and specialty technologies.”

Read more: Apple’s supply-chain challenges

Bottlenecks elsewhere in the supply chain, including in packaging and testing, as well as snarls in logistics have actually weighed on the industry. Apple Inc., which accounts for a quarter of TSMC’s revenue as its biggest customer, is likely to slash its projected iPhone 13 production targets this year by as many as 10 million units, Bloomberg News reported this week.

Net income for the three months ended September rose a stronger-than-expected 14% to NT$156.3 billion ($5.6 billion) on record revenue of NT$414.7 billion. Gross margin in the September quarter was a better-than-expected 51.3%, following improvements in “backend profitability and a more favorable technology mix,” TSMC said. It’s rebounding from a nearly two-year low reached in the previous three months, in part because of currency fluctuations.

TSMC will likely raise prices next year, Taiwanese media reported in August, a move that could help offset concerns over margins. Executives declined to comment on the reported increases, saying only that its pricing strategy is “strategic, not opportunistic.”

“TSMC will be the last foundry to raise pricing during the ongoing semis shortage as some peers have already enacted two to three increases,” Cowen Inc. analysts led by Krish Sankar wrote in a Oct. 11 report. “We expect semis shortages will ease by 2H22 as incremental foundry industry capacity come online.”

The most advanced technologies accounted for 52% of TSMC’s revenue during the quarter, with 5 nanometer making up 18% and 7 nanometer 34%. Development of 3-nanometer technology is “on track,” with mass manufacturing expected in the latter half of 2022, executives said Thursday.

“N3’s cost is definitely higher than N5, that is because of technology complexity and we have to use a lot of new equipment, which has a higher cost,” Wei said. “The ramp-up is very similar to the previous node, with many customers’ engagement actually higher than what we observed in the previous node.”

Smartphones continue to be the largest contributor by product type at 44% of total revenue, while automotive customers made up 4% of revenue, in line with the previous quarter. TSMC has said it will increase shipments to the sector, which has been among the most badly affected by supply shortages.

“Recent factors such as the pandemic in Southeast Asia is affecting the automotive IC supply,” Wei said, adding that the business’s share of the global auto chip market is about 15%. “We cannot solve the entire industry’s supply chain challenge.”

TSMC will build a specialty technology fab in Japan starting in 2022, with production expected two years later, Wei told analysts Thursday. The company has support from the Japanese government for the fab, which will be for the more mature 22- and 28-nanometer technologies. Its own board still needs to formally approve the plan, and investment in the facility will be “incremental” to the $100 billion capital spending it had previously revealed.

(Updates with outlook, business remarks throughout.)

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Jobber Wiki author Frank Long contributed to this report.