TSMC's sales forecast misses estimates despite iPhone boost

[BEIJING] Taiwan Semiconductor Manufacturing forecast quarterly revenue that trailed estimates, dashing hopes that Apple's iPhone will help the world's largest contract chipmaker pull out of a smartphone industry slump and avert the impact of a strong currency.

The Taiwanese maker of the iPhone's processors forecast third-quarter sales of US$8.12 billion to US$8.22 billion, short of the US$8.6 billion projected by analysts.

That disappointment came after TSMC posted second-quarter profit that also missed, hurt by an industry-wide lull ahead of a 10th-anniversary iPhone - one of the year's most-anticipated gadgets.

Global smartphone demand is slowly recovering from last year's record slump with investors counting on new iPhones in the second half to drive demand for semiconductors.

Apple is TSMC's biggest customer, accounting for about 17 per cent of revenue, according to data compiled by Bloomberg. But its forecasts looked soft.

TSMC is predicting gross margins of 48.5 per cent to 50.5 per cent, versus projections for 50.2 per cent.

The company is also facing the challenge of a stronger local currency, which erodes the value of overseas sales, and rising competition in chips from Samsung Electronics.

The South Korean company has been successful at winning business from smartphone makers that rely on Android, the world's most popular mobile operating system.

Global smartphone shipments are only expected to grow three per cent in 2017, according to research firm IDC. TSMC had previously reported a 5.3 per cent increase in first-half sales to NT$447.8 billion (S$20.312 billion).

Apple aside, the second quarter is usually a low season for mobile chipmakers. TSMC's net income fell 9 per cent to NT$66.3 billion in the three months ended June, lagging the NT$69.6 billion average of estimates compiled by Bloomberg.

It's sticking with a forecast for 2017 capital expenditure of about US$10 billion, ramping up and upgrading its lines to meet future demand for the chips used in all mobile devices.

TSMC's shares closed up 1.9 per cent in Taipei before the earnings release and have gained 18 per cent this year. The stock reached an intraday record of NT$218.50 in June, propelled by hopes that the new iPhone will generate a business bonanza.

TSMC kicked off mass production of its latest 10-nanometer A11 processors in June, which is expected to contribute as much as 10 per cent of its revenue by the third quarter, according to Mark Yusheng Lee, an analyst at E Sun Securities.

The revenue contribution of A11 processors could reach 20 per cent in fourth quarter as the chipset is likely to be used in the next iPhones and iPads, Lee wrote in a report.

"Revenue for the third quarter is expected to grow to above NT$80 billion as new smartphone rollouts hit the market and supply of Apple's A11 processor ramps up," Jih Sun Securities analyst Chen Hong Yi wrote in a report ahead of the earnings release.

BLOOMBERG