Taiwan Semiconductor 2Q13 Earnings Call Notes

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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.”