Taipei

TAIWAN Semiconductor Manufacturing Co (TSMC) forecast an up-to-45 per cent spike in January-March revenue and raised its capital expenditure (capex) plan for the year, betting that robust demand for 5G smartphones would dial up profits at the world's top contract chipmaker.

The promising outlook from TSMC - a proxy for global tech demand, given it has clients like Apple, Qualcomm and Huawei - comes as a strong uptake of 5G smartphones is fuelling an overall recovery in the global smartphone market, which has shrunk for the past three years.

TSMC said it expects revenue over January-March to reach US$10.2 billion to US$10.3 billion, versus US$7.1 billion a year ago. "Moving into first quarter 2020, despite mobile product seasonality, we anticipate our business to be supported by the continued ramp-up of 5G smartphones," chief financial officer Wendell Huang said at a briefing on Thursday, after TSMC earlier reported a better-than-expected profit for the fourth quarter.

However, the outlook assumes no disruption caused by the China-US trade war. The world's two largest economies signed an initial trade deal on Wednesday, but with numerous thorny issues still unresolved.

The US has, in particular, pressured Huawei, believing it a potential security threat, despite the Chinese company's repeated denials.

"The company sees that any disruption will be short-lived and, for example, commented that smaller telco infrastructure suppliers can quickly pick up the shortfall if Huawei can't deploy 5G as planned," analysts at Bernstein wrote in a note.

"We find that too optimistic and believe the short-term impact will be notable," they added.

TSMC's October-December net profit rose 16.1 per cent year-on-year to NT$116.04 billion (S$5.22 billion), above an average forecast of NT$111.41 billion drawn from 19 analysts by Refinitiv.

Revenue rose 10.6 per cent to US$10.39 billion, versus the company's estimate of US$10.2 billion to US$10.3 billion and an average US$10.55 billion estimate from 21 analysts.

"Our fourth-quarter business benefited from strong demand for high-end smartphones, initial 5G deployment and high-performance computing related applications using TSMC's industry-leading seven-nanometre technology," Mr Huang said.

The seven-nanometre is one of the most advanced technologies TSMC uses for its high-end semiconductors.

It expects the global market for foundry chipmaking - contract chip manufacturing - to grow 17 per cent this year, outstripping an 8 per cent rise in the semiconductor market worldwide.

It raised its estimate for capex to US$15-16 billion for 2020, versus an earlier forecast of a level similar to its estimated capex for 2019, which was US$14-15 billion. In the end, it spent US$14.9 billion last year.

The higher capex allocation comes amid forecasts for rising smartphone demand. Industry tracker IDC sees global smartphone shipments topping 1.4 billion units in 2020, up 1.5 per cent on year, which should bode well for chipmaker TSMC.

Reflecting growing optimism for the tech sector, TSMC shares hit a record high this month, after gaining more than 50 per cent in 2019.

Investor sentiment should get a further boost from a 'phase one' trade deal agreed this week between the US and China, which is expected to defuse the 18-month trade war that has weighed on the global economy and the tech industry.

KGI analyst Laura Chen wrote in a January report prior to the earnings announcement: "Looking into 2020-21, we believe TSMC's position in advanced technology nodes remains solid given its greater capacity, yield rate control, execution and diversified customer base."

Japan's Nikkei reported this week that the US had increased pressure on TSMC to make military-use chips there, free from any potential Chinese interference.

TSMC declined to comment on the report, reiterating that the company is always evaluating the idea of making chips everywhere. REUTERS