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TSMC Expects Fiscal 1Q16 to Replicate Fiscal 4Q15 Earnings

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Jan. 22 2016, Updated 9:06 p.m. ET

Smartphone market to drive growth in 2016

So far, we saw TSMC’s (TSM) performance in fiscal 2015. The company started the year with strong growth that was backed by Apple (AAPL) orders, followed by a slowdown in the high-end smartphone market in the second half of 2015. Let’s see how fiscal 2016 could unwind for the company.

TSMC has posted a flat guidance for fiscal 1Q16 as its major customer—Apple—scaled back the production of the iPhone 6s and 6s Plus devices. Note that the foundry manufactures almost 50% of A9 chips for those products. However, production could pick up in fiscal 2Q16. Another Apple supplier, Cirrus Logic (CRUS), expects a similar trend for 2016.

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Fiscal 1Q16 guidance

For fiscal 1Q16, TSMC expects to post revenue in the range of $6 billion to $6.2 billion, almost flat from fiscal 4Q15. The company expects the softness in the high-end smartphone demand to be offset by a recovery in China and other emerging markets (EEM) in fiscal 1Q16. The lower range of the revenue comes as the seasonal demand fades away and semiconductor companies maintain tight inventory levels. This is because a strong US dollar and an uncertain macro environment affect the sales of those companies.

TSMC expects to post a gross margin between 47%–49%, and an operating margin between 36.5%–38.5% in fiscal 1Q16. The guidance is almost similar to the fiscal 4Q15 guidance. The analysts’ expect the company to earn a gross margin of 47.6% on revenue of $6.2 billion.

Fiscal 2016 guidance

For fiscal 2016, TSMC forecast sales to grow 5%–10%.  Analysts estimate the company to post more than 8% of growth in revenue in fiscal 2016. For the year, the company expects the global smartphone shipment unit to grow more than 8%. Also, it expects the PC, tablet, and digital consumer electronics units to fall 3%, 7%, and 5%, respectively.

Other research firms forecast smartphone sales growth to slow to the single digits. IDC (or International Data Corporation) expects smartphone sales to grow at a compounded annual growth rate of 7.4% during the 2015–2019 period. The research firm expects the growth to be driven by low-cost smartphones in emerging markets.

Even Intel (INTC) posted a similar guidance, with a slow start in fiscal 1Q16 followed by a strong growth in the remainder of the year.

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