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TSMC likely to post first annual profit drop in 8 years
Source: DIGITIMES   Editor: Amanda   Update Time :2019/3/12 17:16:21

Taiwan Semiconductor Manufacturing Company (TSMC) is likely to report an annual decrease in net profits this year, due to an even more saturated smartphone market and a slowdown in the datacenter market growth, crypto crash and unfavorable macroeconomic conditions, coupled with the impact of defective chemical materials on its performance in the first quarter, according to market observers.

TSMC managed to post net profit growth for the seventh consecutive year in 2018, when the foundry generated a record-high profit of NT$351.13 billion (US$11.36 billion) or NT$13.23 a share. Nevertheless, TSMC has started seeing its profit growth slow down to a low single-digit percentage since 2017.

TSMC already described 2019 as "a slow year" for its operations and also the overall semiconductor market, citing macroeconomic uncertainty, and disappointing high-end smartphone sales that have led to inventory pile-ups in the supply chain. The use of substandard photoresist chemicals that disrupted its 12/16nm chip production at Fab 14B earlier this year is set to have a further impact on the foundry's performance this year.

The photoresist material incident has prompted TSMC to cut its revenue estimate for the first quarter to NT$7-7.1 billion from NT$7.3-7.4 billion. The impact will also reduce TSMC's gross margin by 2.6pp, operating margin by 3.2pp, and EPS by NT$0.42, the foundry disclosed previously.

TSMC said the wafers scrapped will be made up in the second quarter. But the incident is expected to reduce its gross margin by 0.2pp, operating margin by 0.2pp, and EPS by NT$0.08 in all of 2019.

Judging from TSMC's revised estimate, market watchers said the foundry will likely post a profit decline in 2019 following growth over the previous seven years. The foundry is also set to see its revenues increase by less than 3% this year, according to the watchers.

A ramp-up in orders for 7nm chips from HiSilicon, Qualcomm and AMD will help TSMC see its March revenues rebound and manage to meet its sales guidance for the first quarter. However, disappointing sales of the new iPhones and a cutback in orders placed by GPU firm Nvidia will still have a substantial impact on the foundry's overall performance during the first quarter, the watchers noted.

Whether TSMC will be able to enjoy another year of profit growth in 2019 will really depend on orders for new 7nm chip products as well as orders for HPC, 5G, AI and IoT applications, the watchers said.

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