TSMC Cuts Sales, Spending Outlook as Crypto Slowdown Bites

(Bloomberg) -- Taiwan Semiconductor Manufacturing Co. trimmed its outlook for 2018 revenue and capital spending, reflecting lethargic mobile and digital currency mining demand as it gears up to supply the next batch of Apple Inc.’s iPhones.

Chief Executive Officer C. C. Wei said sales will rise this year by a high single-digit percentage in U.S. dollar terms, down from an already reduced projection of 10 percent. That followed a disappointing third-quarter sales forecast from the world’s largest contract chipmaker. It’s predicting revenue of $8.45 billion to $8.55 billion in the three months ending September, short of the $8.68 billion projected.

Taiwan’s largest company, a bellwether for the chip industry as well as an early indicator of iPhone demand, heads into its busiest quarters still grappling with waning enthusiasm for the high-powered chips used to mine digital currencies. Executives told investors Thursday they expected demand for premium devices -- such as the iPhone -- to help offset crypto-sector lassitude in the second half.

“There is upside to Apple orders but they will mainly contribute to sales in the fourth quarter,” Mark Li, an analyst with Sanford C. Bernstein, said after the earnings call. The “weakness mainly comes from crypto.”

TSMC also reduced its capital spending outlay for the year, to $10 billion to $10.5 billion from as much as $12 billion previously, signaling a slower pace of investment in technology and capacity expansion. That could spell trouble for companies such as Applied Materials Inc. and ASML Holding NV that supply chipmaking equipment to the Taiwanese foundry.

Watch Chip Equipment, Chip Stocks After TSMC Capex and Outlook

While TSMC’s suggesting a bounce-back in smartphone demand this year, the industry that once powered growth in industries from semiconductors to displays remains in a funk after recording its first year of decline on record. Apple, TSMC’s biggest customer, typically unveils its latest phones in September but is coming off a disappointing performance for the much-heralded iPhone X.

“Recently the development in smartphone units actually recovered,” Wei told investors, referring to global demand for mobile devices. “So it’s better than we forecast three months ago, but it’s not a big variation from what we forecast.”

TSMC’s Predictions for the Next Few Years
  • Annual compound sales growth of 5%-10% in USD terms
  • Gross margins of around 50%
  • Operating Margin of about 39%
  • Return on equity of more than 20%

TSMC will also begin cranking out next-generation 5-nanometer chips in large quantities only from the first half of 2020, Wei told investors, dashing expectations for a 2019 ramp-up.

TSMC had tapped surging interest in digital currencies by making chips for miners such as Bitmain. But a series of regulatory crackdowns and sliding prices for Bitcoin dampened enthusiasm just as the global smartphone market fizzled, prompting the company to lower its full-year outlook in April.

On Thursday, the company reported that net income rose 9.1 percent to NT$72.3 billion ($2.4 billion) in the three months ended June, in line with estimates. The Hsinchu-based company previously reported a 9 percent rise in sales for the period of NT$233.3 billion.

Shares of the company stood largely unchanged before the announcement, after falling 2.2 percent this year.

©2018 Bloomberg L.P.