Taiwan Semiconductor 2Q16 Earnings Call Notes

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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.”