Taiwan Semiconductor 4Q15 Earnings Call Notes

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Taiwan Semiconductor Manufacturing Company’s (TSM) CEO Mark Liu on Q4 2015 Results

Mark Liu

very severe inventory reduction during 4Q

“I will start with demand outlook messages. As the semiconductor supply chain went through a very severe inventory reduction during the fourth quarter 2015.”

Inventory is at or slightly below seasonal level. Customers likely to remain cautious

“The severe inventory reduction in the fabless industry during the fourth quarter was fabless data inventory to about or slightly below the seasonal level as we exited 2015. However each strong U.S. dollar environment and a volatile financial market that strengthened the market demand for overall semiconductor last year may continue for some time. Therefore we expect our customers will likely remain cautious in their inventory control and keep inventory close to seasonal level.”

Smartphone demand in China and other emerging markets shows signs of recovery

“For our first quarter 2016 this quarter, we see a reduction of high end smartphone demand. On the other hand, demand for smartphones in China and other emergent markets shows signs of recovery with a upward momentum. We thus forecast a mild revenue decline of minus 1.3% to minus 2.7% quarter-to-quarter for the first quarter 2016. Beyond the first quarter 2016, we expect to be back to a growth trajectory. For 2016 we forecast the world smartphone shipment unit growth rate to be plus 8%, PC minus 3%, tablet minus 7%, and the digital consumer electronics minus 5%.”

Inventories are much lower than last year but the macro economic uncertainty is very high

“Compare this year and last year, there is these two major differences leaders to make the current forecast. One is when we enter the beginning of last year, we did not know of inventory buildup is very, very high. Its — I still remember 11 or 12 days above seasonal. And then this year however, we considered the traffic reduction of inventory during the fourth quarter, we have a better estimate how the starting point of the year. And secondly of course is macro economics of this year as you know is still several uncertain factors in it. Therefore we are just taking those two factors on account to make our current forecast, therefore it will lead to a bigger range.”

Morris Chang

We’re everyone’s foundry

” we’re everyone’s foundry. Being everyone’s foundry has advantage of participating in the growth of whoever succeeds the best, where the customer succeeds the best. We participated in it and we have been in everyone’s foundry ever since while maybe not when we started it, but certainly for the last 10-15 years we have been virtually everybody’s foundry and we intend to remain that way.”

We don’t build capacity unless we have very high confidence that we will have customers using it

“in restaurant, you care about the margin, right but mostly you care even more filling the restaurant to customers that’s how utilization you see, that’s very, very important so anyway that also as explains always said it, we are very careful in building our capacity and building up capacity. You don’t want to rent a big whole for restaurant and then have enough customers so thus far we are very careful in building capacity. And I have said that many times in the past, we don’t build capacity unless we have very high confidence that we will have customers using that capacity.”

Smartphone sell through estimated at 1.5B

” I think Mark said that our estimate of handset, smartphone sell though is 1.5 billion units worldwide. 8% I think. 8% over last year.”

Capital intensity should continue to decline

“We’ve predicted our capital intensity, the way you’ll find it. CapEx divided by current year revenue. We predicted it quite a few years ago that it will go down and that it’s going down. So the update is that yes, our prediction was correct. It will go down.”

There were three big acquisitions last year in the semiconductor space

“Well the three big ones last year as far as we were concerned were Intel, Intel’s acquisition of Altera, Avago and Broadcom and XP and Prescale. All six of them, I’m talking about both the acquirer and the acquired, all six of them were our good customers and after the combination there will be three and I hope and I have reason to expect that the three combined entities will continue to be our good customers. That’s what being everybody’s foundry means.”