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Friday, June 19, 2015 1:53:54 AM
Even if 10nm is delayed at Intel, TSMC will not be able to spend enough money to keep pace with Intel.
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Even Apple Can’t Save TSMC
By Shuli Ren
Global smartphone growth is decelerating fast.
China, the largest market for smartphones, is already saturated. As a result, global smartphone shipment is expected to grow 16% this year, down from 2011's 68% high, and taper off quickly to 8% in 2016 and 5% in 2018, data provided by Bernstein Research show.
And this is bad news for Taiwan Semiconductor Manufacturing Corp., or TSMC (2330.Taiwan/TSM), said Bernstein’s Mark Li and David Dai.
Using regression analysis, the analysts showed that up till the second quarter last year, TSMC’s quarterly revenue was heavily correlated with global smartphone shipment. R2 in their simple regression is 0.93. In plain English, global shipment data explains 93% of the variation in TSMC’s revenue.
The most unfortunate thing for TSMC is that Wall Street analysts still expect the company to grow at an annualized 10% in the next five years. How is this possible when the shipment growth is expected to taper off to low single-digit? In other words, Wall Street will have to revise down their estimates at some point, which bodes ill for TSMC’s shares.
To be sure, TSMC saw outsized growth since it became the sole supplier to Apple‘s (AAPL) iPhone and iPad processors in the third-quarter last year. But “Apple only presents downside risk”, because:
TSMC will not be the sole supplier to Apple’s next-gen processors due to the competition from Samsung (SSNLF). Beyond the next generation, it is also unlikely that TSMC would regain the sole-supplier role due to the continuous competition from Samsung & Intel (INTC) and AAPL’s strategy to keep multiple suppliers.
But even if TSMC remained the sole supplier to Apple, the indestructible Apple brand can’t save TSMC, because it is not big enough in the global smartphone foundry industry. Last year, Apple shipped 193 million phones, versus the rest of the industry’s 1.3 billion shipments. Apple can only contribute to 18.7% of the total semi foundry business, estimates Bernstein.
Some may argue trading at 11.7 times forward earnings, TSMC has become cheap. Is it? It depends on the metric you are using: TSMC trades at 4.4 times sales, which is by no means cheap. Investors in this stock are betting on stellar execution and operational efficiency.
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