TSMC’s US$15 billion splurge galvanises hope of a 5G-led rebound
- The world’s largest contract chip maker said the advent of 5G smartphones will result in more chips in devices than before
A plan by Taiwan Semiconductor Manufacturing Co (TSMC) to spend as much as US$15 billion on technology and capacity in 2019 – roughly 50 per cent higher than originally envisioned – is spurring hopes that the dawn of next-generation 5G mobile networks will rev up global chip and smartphone demand.
TSMC, the primary chip supplier to Apple, told investors it is sharply increasing its estimate for 2019 capital expenditure to between US$14 billion to US$15 billion from as much as US$11 billion previously, and chief financial officer Wendell Huang said 2020 spending will be similar. The Taiwanese company also projected current-quarter revenue ahead of estimates, an affirmation that the latest iPhones have proven a hit with consumers.
Chief executive C C Wei sketched out hopes that the emergence of 5G – the foundation of future technologies from automated factories and smart homes to blazing-fast consumer electronics – will help underpin its business in coming years. TSMC, which is the world’s largest contract chip maker, and is seen as a barometer for the technology industry thanks to its heft and place in the supply chain, said the advent of 5G-enabled smartphones will result in more chips in devices than before.
“We are much more optimistic than six months ago,” Wei said, adding that the 5G momentum was larger than the company expected. TSMC has increased its forecast of the 5G smartphone penetration rate in 2020 to a percentage in the mid-teens from its previous single-digit estimate. Many countries, especially larger ones, were rapidly pushing ahead with 5G roll-out plans, Wei said.
Semiconductor manufacturing equipment suppliers including ASML Holding, Applied Materials and Tokyo Electron could stand to benefit from TSMC’s increase in capital spending.
In addition to 5G, TSMC’s push is driven by growing demand from tech giants such as Apple and Huawei Technologies, said Roger Sheng, a semiconductor analyst with Gartner.
“Everyone is waiting to see a bounce back of global smartphone market next year after Apple adopts 5G,” Sheng said. “The self-designed Huawei chipsets will also push demand, as will Qualcomm’s 5-nanometre chips for next year and AMD’s server chip demand.”
Although the demand outlook remains uncertain for 2020, the global semiconductor market is set to make a gradual recovery on the back of the demand related to 5G, artificial intelligence and automotive applications, according to a report from research firm TrendForce on October 2.
Taiwanese chip maker TSMC set to gain as others cut supplies to Huawei
On Thursday, TSMC also underlined expectations that Apple, its largest customer, is riding a bounceback in demand for its latest iPhones after a lukewarm 2018 iteration. Lower prices and ageing handsets are helping drive demand for the iPhone 11 range, and Apple is said to be asking its assemblers to target the high end of an original forecast for 70 million to 75 million unit shipments this year.
The Taiwanese company forecasts revenue of US$10.2 billion to US$10.3 billion in the pivotal December holiday quarter, surpassing an average projection for about US$9.9 billion. TSMC gave that sales outlook after reporting a net income of NT$101.1 billion (US$3.3 billion) for the September quarter, handily beating estimates as the global chip market recovers.
Still, fallout from ongoing trade conflicts could crimp an industry revival. While TSMC does not factor trade conflicts into its capital expenditure plans, any international trade war will have a negative effect on the semiconductor sector, Wei said. China is an especially important market for TSMC and the semiconductor industry, he added.
Apple shares near record as optimism grows over iPhone demand after release of new models
TSMC and its industry peers had grappled with a plateauing smartphone market, efforts by Apple to move beyond hardware and US tech export curbs on No 2 customer Huawei. But investors are growing more confident that the emergence of 5G will prop up chip prices and demand, while the latest iPhones are firing up consumers. TSMC is in fact straining against capacity constraints in the current quarter, Sanford C Bernstein analyst Mark Li said.
The “iPhone is driving stronger near-term demand”, Li wrote in an October 10 report. “We believe the competitive pricing of iPhone 11 is garnering good traction and has prompted Apple to place more orders at the supply chain.”
TSMC reported third-quarter revenue of NT$293 billion on Wednesday. Its shares climbed to a record in October on optimism over the latest iPhones. They closed about 1 per cent lower ahead of the earnings report.
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