Smartphones, 28nm Tech Drive TSMC 1Q Revenue

Taiwan Semiconductor Manufacturing Corp. expects to post record sales for the second quarter of this year as demand surges for chips the foundry manufactures for its customers supplying to the high-end smartphone market.

The Taiwanese foundry is projecting a 22% quarterly increase in sales to between $5.96 billion and $6.06 billion, gross margins between 47.5% and 49.5%, and operating margins between 36.5% and 38.5%, according to CFO Lora Ho. Its management said that it has seen strong orders across all segments since mid-January.

"We now have improved demand outlook from the following three perspectives," co-chief executive Mark Liu said in a conference call with analysts Wednesday to discuss TSMC's first-quarter financial results. The smartphone segment "appears healthier than we expected last quarter. The acceleration of LTE infrastructure buildup, LTE smartphone proliferation, and the increased silicon content of smartphone improved our demand outlook."

TSMC's year is off to a good start. For the first quarter of 2014, it posted sales gains of 11.6% from a year earlier and 1.7% from the fourth quarter of 2013 to $4.92 billion. Net income jumped 21% from a year earlier and 6.1% from the fourth quarter to $1.59 billion. The first-quarter results were better than expected, according to Ho, who attributed them to inventory replenishment at many key semiconductor customers.

From the fourth quarter, revenue jumped 8% in the communications sector, 2% in computer, and 2% in industrial but declined 14% in consumer.

"We were able to capture the bigger marketshare of customers' upside demand, thanks to the better performance and higher yield and reliability for our advanced technologies," Ho said.

As the world's largest foundry, TSMC manufactures many of the chips designed into high-end smartphones, including 64-bit application processors, multi-mode baseband processors, multiband receivers, image sensors, MEMS devices, Near Field Communication chips, and fingerprint sensors, Liu said.

This year, he said, its silicon content (measured in average wafer value per unit) will rise to $13.90 per high-end smartphone in 2014, versus $10.80 last year. For midrange and low-end phones, the figure will remain at $6 and $3.60, respectively.

Liu expects the company's 2014 sales growth to outperform foundry sector growth expectations "by several percentage points." The market research firm IC Insights expects the pure-play foundry market to grow 14% to $41.2 billion this year.

TSMC has started mass producing chips using 20nm technology, specifically its 20SoC process, which is based on high-k/metal-gate technology. It expects this process to account for 20% of its wafer revenue for the fourth quarter and 10% for the full year. "20SoC by far is the fastest ramping in TSMC's history. Of course, this fast ramp is to meet customers' strong demand," said co-chief executive C.C. Wei. TSMC expects 20SoC to drive profitable growth this year and next.

The company posted capital expenditures of $3.8 billion for the first quarter. Ho expects full-year capex to grow 10% from 2013 to $10 billion. Approximately 70% of the capex budget in the first half will be allocated toward the quick rampup of the 20nm process, she said. Total overall capacity is expected to reach 8 million 12-inch equivalent wafers for the full year.

Meanwhile, 28nm revenue continues to grow and accounted for 34% of its total wafer revenue in the first quarter, while 40nm represented 21%. The two advanced technologies generated 55% of its first-quarter total wafer revenue, versus 51% in the fourth quarter of 2013.

"TSMC will gain 28-nanometer marketshare with 28-nanometer high-k/metal-gate transition in the second half of 2014," Liu said. He expects the company to gain share in the overall foundry market this year.

Liu also updated investors on its 16nm-FinFET process technologies. He expects the first custom tapeouts of 15 products in 2014, plus another 45 in 2015, with volume production planned for next year. TSMC is also working on an enhanced version of the 16nm FinFET, 16nm FinFET plus, which offers a 15% speed improvement and 30% total power reduction over the earlier version at the same speed. It also offers a 40% speed improvement over its 20SoC process, and it will be qualified in September, he said.

TSMC is working on bringing up a 10nm FinFET process, which offers a speed improvement of more than 25% over 16nm-FinFET plus and 2.2x greater density. The company expects this process to qualify for production in the fourth quarter of 2015.

Wei also touched on TSMC's InFO advanced assembly solution for large mobile device customers. InFO (which stands for "integrated fanout") is a wafer-level packaging technology that is "close to being in production, probably next year," he said.