Taiwan Semiconductor 2Q17 Earnings Call Notes

Mark Liu – Co-CEO, President and Additional Director

AI is getting everywhere

“AI is indeed getting to smartphone. That’s for sure. And that is — actually, AI is going to every segments in our growth sectors. AI is getting to mobile. AI is getting to high-performance computing like deep learning. AI will go into automotive, which is ADAS and so forth. And AI will go to simple IoT, MCU also. So this AI is a general application driver of momentum — put this way, one of the driver — driving momentum, and it is ubiquitous.”

C. C. Wei – Co-CEO, President and Additional Director

Lora Ho

Increasing customer concentration but that’s not all a bad thing

Our top 10 customers account for 64% in 2015. And that number went up to 69%, as you can see from our annual report. This is mainly because there are consolidations among customer base. For this year, we expect the concentration will come down a little bit. But I want to say that people may feel customer concentration is not a good thing. But we feel the other way. It’s not really a bad thing, because when you have a bigger customer, that means the dependency for them to TSMC as the customer and for us to then as the supplier needs to be stronger, the relationship collaboration needs to be stronger, which is in favor of a foundry business model. So we view that as a positive thing.

Analyst Comment:

Increasing semiconductor content in phones

“Google has talked about their next oval leaves, there’s going to be accelerators coming out later this year. I think we hear about Apple Neural Engine. There’s a significant shift happening which would suggest smartphone content is going to rise for — semiconductor content is going to rise in smartphones because of AI. And I don’t know whether you see this accelerating the smartphone growth rates that you see over the next couple of years.”

Taiwan Semiconductor 2Q16 Earnings Call Notes

Taiwan Semiconductor Manufacturing’s (TSM) CEO Mark Liu on Q2 2016 Results

Silicon content in smartphones continues to increase

“This silicon content increase is driven by increasing adoption of innovative smartphone features, such as dual camera, security sensing, augment reality, virtual reality and migration of 4G, 4G Plus and to 5G. Most of the high end smartphone features are also proliferating into lower end smartphones, because those innovative features usually require more advanced technologies. With our customers, we will gradually increase our market share in the smartphone market.”

High end smartphone has been slowing but we don’t expect that to continue

“Indeed, the smartphone has been slowing down in the past six quarters, particularly for the high end. And actually, but at the same time, the mid end, certainly in content, is increasing very fast. And the unit number at the low end also increasing very fast. As far as the high end, we don’t believe the trend for the last year drop will continue. Okay? Innovation will surface to drive the momentum of the unit growth. So in total, we still estimate the growth rate will be about 5% in unit growth. Significant content I mentioned is also about equally important. So that’s the general model we have.”

Lora Ho

Better than expected second quarter due to increases in mid and low end smart phones

“We had a good second quarter. Our second quarter, our second quarter revenue increased 9% sequentially to NT$222 billion, exceeding the high end of our guidance given in April, due to business upside resulting from the demand increases in mid and low end smartphones and customer inventory restocking.”

Increase in demand from China smartphone

” Our second quarter result was helped by an increase in demand from China 4G Plus smartphone ramping and continued 3G to 4G upgrade from emerging markets. Given a stronger than seasonal business for our fabless customers in the second quarter, we estimate our fab-less customers’ DOI exiting, exceeding second quarter is above seasonal level.”

Capital intensity declining

“TSMC’s CapEx-to-sales ratio, known as capital intensity, has come down significantly in the last two years. Compared with the high 40s level seen in 2011 to 2013, our capital intensity has dropped to about 31% last year. Going forward, we estimate our capital intensity will remain at mid-30s level for the next few years. One major factor contributing to this moderate level of capital intensity is our effort made to minimize the conversion loss between two adjacent technology nodes.”

Taiwan Semiconductor 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Upbeat year in 2015

“Looking forward to 2015, it should be another upbeat year. We forecast the semiconductor industry revenue growth to be 5%. The foundry revenue growth is 12%. For TSMC, we are confident we can outperform the foundry revenue growth by several percentage points in 2015.”

28 nm demand continues to grow

“on the demand side, the demand continue to grow, which are driven by the strong growth of mid and low end 4G smartphone, as well as the technology migration from some second wave segments such as radio frequency, hard disk drive, fast controller connectivity and digital consumers. Second, on the technology improvement, we continue our effort to enhance 28 nanometer technology by improving the speed performance while reducing the power consumption.”

TSMC silicon content increasing in phones

“the TSMC silicon content in the average phone is actually increasing, which is something that is not recognized by another people, because everybody says that the weight, the gravity is shifting to the middle level, lower level priced phones”

Takes 8 quarters to ramp 20nm

“or 20 nanometer, it will take eight quarters so we believe — so 20 nanometer start to sell in second quarter ’14 and we expect by first quarter ’16, last eight quarters you will be at corporate average level. For 16 we are going to mass produce this product.'”

Some companies build capacity before it’s sold. We don’t

” think I have pointed out many times in the past that some companies, some foundries build capacity on speculation, just like builders build houses or condos on speculation. They haven’t sold them yet. Their speculation is that after they build the apartments or houses, they will be sold, but that doesn’t always happen of course. Now we however are different. We build capacity when we know it’s already sold.”

Three strengths

“As I think we have said many times that we really have three major strengths. One is technology, second is manufacturing, and third is customers’ trust and this has been our model ever since we started the Company almost 30 years ago.’

20 will live longer than you think

“2017 the trends is going to continue. We’re not going to lose the leadership on 16 market share once we recapture that in 2016. It’s going to continue 2017, 2018 and also both 20 and 16 are going to live longer than you might think now. Well 28 for that matter also will live longer than you think.’

Cost per transistor does continue to come down

“The cost of transistor continues to go down, and by scaling mostly is — everybody knows. Nobody, nobody I think refuses that statement. We see the cost of transistor continue going down in a constant rate and in going forward, the cost of transistor going down probably at slightly slower rate. That’s the argument. But it really depends on companies, and some companies simply do not have the technology capabilities.'”

Taiwan Semiconductor 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Now let’s look at the supply-chain inventory. Two things have happened in the last 3 months or 2 things have actually become more obvious in the last 3 months. First, the IC vendors inventory preparation for product launch by several major handset makers, the IC vendors preparing for product launch by major — by several major handset makers, has caused the supply inventory days, inventory days to increase. Second, the lower than expected sales of PCs and several smartphone models have again caused the supply-chain inventory to become higher. Now in April, we have forecast the fabless supply-chain inventory, fabless supply-chain inventory to be 73 days — I’m sorry, to be 70 days, 70 days. In April, we have forecasted fabless supply-chain inventory to be 70 days at the end of the second quarter. Now we are forecasting — saying, we are saying that it will be — or it was 73 days at the end of the second quarter.

Now 3 months ago, we’re forecasting the supply chain, the fabless supply-chain inventory to be 68 days at the end of the third quarter, and now we are forecasting it to be 71 days at the end of third quarter. About the fourth quarter, 3 months ago, we were forecasting the inventory again for the fabless to reach 66, and now we are still forecasting 66. So our inventory days forecast for the Fabless supply-chain has increased for the second and third quarter, but remains unchanged in the fourth quarter. This is an early indication that the fourth quarter may be a down quarter because we expect the supply-chain to take serious action to manage their inventory in the second half. And the overall inventory, however, will approach the seasonal level by fourth quarter. I’m talking about the 66 days that we are forecasting. That’s very close to the seasonal level.”

“High-end year-on-year growth this year was 18% — or is 18%, we estimate, from 361 million last year to 428 million this year. Mid-end grows from 167 million units to 227 million units, a 36% growth. Low-end rose from 202 million to 341 million, 69% growth. So this year, we will see high-end units to grow 18%; mid-end, 36%; low-end, 69%, for a total smartphone year-to-year growth of 36%.”

“We are seeing our Chinese customers taking a more important role in providing chip solutions to the market.”

“On 16 FinFET, it will start volume production about 1 year after 20 SoC, in other words, early in 2015.”

“Grand alliance, by that, we mean our alliance with customers, with the design — electronic design EDA companies, and companies such as ARM and imagination technology and companies like Cadence, Mentor Graphics, as well as our own platform, the Open Innovation Platform. So it’s an alliance with the customers, with the EDA companies, with the IP providers, and of course, with the — our key vendors, critical vendors.

Now the reason I want to point that out is that for TSMC, we have entered a new era of competition. We pointed that out almost every time we get together in this meeting, and we’ve been pointing out for the last 1 or 2 years now. Now in this new era of competition, the competition is not foundry to foundry. It is not foundry to IDM. It is grand alliance to IDM. Did I made it clear? That’s the reason I’m pointing it out.”

“es, 20-nanometer will — I think, will have probably, I’m not sure yet, a shorter life than 28-nanometer. But then we convert it quickly, convert the capacity, to 16-nanometer. I think 20-nanometer and 16-nanometer together will have a longer life than 28-nanometer.”

“The fourth quarter down could be a little more severe than the last year — than the fourth quarter down last year. And however, the first quarter down will not be as severe as the first quarter down this year. And did I make it — myself clear? I mean, I think that, last year, incidentally, our fourth quarter was down by, it’s about, 7%. And I just said now that — well, anyway, it could be a little more severe than that.”

“Yes, I think so, very definitely. Well — but it’s only a question of time. And I don’t frankly know. 16-nanometer? Well, even the leading edge won’t start using 16-nanometer until 2015. And I think that the lower-end manufacturers will probably be, well, I would say, at least 2 years behind, 2017, yes.”

“remember what I said earlier that we don’t always build capacity — build as much capacity as they would like us to build. Everybody, I think, tends to be a little optimistic about his own new products or whatever, new markets and so on, yes.”

“What’s the use of telling you this if you don’t even remember what I told you last time? Well, anyway, the reason I try to — I test you is because I wanted to tell you a new number. But I just, first, wanted to test whether you remember the last one or not.”

“On an average smartphone, we have $7 per phone. On the low-end, it’s $4; middle-end, $6; and high-end, $9.”

[Analyst comment] “I noticed that comparing TSMC with Samsung and Intel, TSMC definitely have huge fabs. They are connected versus — the other 2 are more scattered around the world for various reasons.”

“Cost advantage, yes. I believe, there is some cost advantage in connecting all the fab into one GIGAFAB. But I think the main advantage is probably in time to expand or time to market. That is — we qualify only once because — in one big GIGAFAB, we qualify only once. Whereas if they are disconnected, if they are separate fabs, there, usually, we have to qualify each fab on the same product for this, yes — well, on the same technology, let’s say, yes.”

[analyst comment] “Intel — based on all industry check, Intel will run a 14 FinFET by second half next year, probably will start to do the foundry for year 2015. And Samsung claim — and they are going to jump from 28 to 14 FinFET, similar — like the year 2015.”

“Will they skip 20-nanometer? Is that the question? Yes. I think some customers might. Some, some, but I think a larger part of the customer — a larger percentage of the customers will go to 20 first and then 16.”