TSMC predicts a bullish end by 2021 due to strong chip demand

(Bloomberg) – Taiwan Semiconductor Manufacturing Co. forecast fourth quarter sales and margins that exceeded some analysts’ estimates as chip demand remained robust amid the deteriorating supply chain.

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The world’s leading foundry announced Thursday that it expects sales of up to $ 15.7 billion in the three months to December, which will contribute to full-year sales growth of around 24% in dollars. The gross margin can go up to 53% with executives repeating a long-term goal of greater than 50%. Analysts had expected average sales of 15.3 billion US dollars and a margin of 51.4% for the December quarter.

TSMC’s production is likely to remain stretched through 2022 as demand for semiconductors, which power everything from cars to the latest smartphones, drove lead times to record highs and helped fill the order books. In order to secure supplies, more customers now pay in advance than just “one or two” before. But capacity constraints have limited the Taiwanese company’s ability to take full advantage of the boom, despite allocating $ 100 billion to increase production over three years and announcing plans for a new plant in Japan.

“We assume that the capacities of TSMC will remain very tight in 2021 and 2022,” said Chief Executive Officer CC Wei in a conference call. “While short-term imbalances may or may not persist, we believe that our technology leadership will enable TSMC to meet the strong demand for our advanced and specialty technologies.”

Read more: Apple’s Supply Chain Challenges

Bottlenecks at other points in the supply chain, including packaging and testing, as well as bottlenecks in logistics have put a strain on the industry. Apple Inc., which accounts for a quarter of TSMC’s sales as its largest customer, is likely to cut its forecast production targets for the iPhone 13 by as much as 10 million units this year, Bloomberg News reported this week.

Net income for the three months ended September rose more than expected 14% to NT $ 156.3 billion ($ 5.6 billion) on record sales of NT $ 414.7 billion. The September quarter gross margin was better than expected at 51.3% after “backend profitability and a cheaper technology mix” improved, TSMC said. It is rebounding from a nearly two-year low hit in the past three months, in part due to currency fluctuations.

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

“TSMC will be the last foundry to raise prices amid the ongoing shortage of semi-finished products as some competitors have already made two to three increases,” wrote Cowen Inc. analysts, headed by Krish Sankar, in an October 11 report. “We assume that the shortage of semi-finished products will decrease by 2H22, as the capacities of the foundry industry go online incrementally.”

The most advanced technologies accounted for 52% of TSMC’s sales for the quarter, with 5 nanometers accounting for 18% and 7 nanometers accounting for 34%. The development of 3-nanometer technology is “on the right track,” with mass production expected in the second half of 2022, executives said Thursday.

“The cost of N3 is definitely higher than that of N5, because of the complexity of the technology and we have to use a lot of new devices that are more expensive,” said Wei. “The ramp-up is very similar to that of the previous node, although the engagement of many customers is actually higher than what we observed with the previous node.”

Smartphones continue to make the largest contribution by product type, accounting for 44% of total sales, while automotive customers accounted for 4% of sales, as in the previous quarter. TSMC has announced that it will increase supplies to what is one of the sectors most affected by supply bottlenecks.

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

TSMC will build a special technology factory in Japan from 2022, with production expected two years later, Wei told analysts on Thursday. The company is receiving support from the Japanese government for the factory, which will accommodate the more mature 22- and 28-nanometer technologies. Its own board of directors has yet to formally approve the plan, and the investment in the facility will be “incremental” to the previously announced investment of $ 100 billion.

(Updates with a view, company comments throughout.)

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