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A Look at TSMC’s 2018 Outlook for the Semiconductor Industry

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TSMC’s industry outlook

Taiwan Semiconductor Manufacturing Company (TSM) is a bellwether for the semiconductor industry, as it has exposure to various subsegments. It manufactures different types of chips used in different end markets.

The company expects the overall semiconductor market, excluding memory, to grow 5% YoY (year-over-year) in 2018. The World Semiconductor Trade Statistics expects overall semiconductor revenue, including memory, to grow 12.4% YoY in 2018, slower than the 21.6% growth witnessed in 2017. This slowdown shows that memory chips account for a major portion of the semiconductor industry. Micron Technology (MU) expects the memory industry’s demand and supply to grow in the double digits through 2021.

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TSMC expects the foundry segment to grow faster than the overall industry. It reduced the foundry segment’s 2018 growth estimate from 8% to 7%. It also revised its 2018 revenue guidance downward to 7%–9% from its previous guidance of 10% due to falling cryptocurrency demand and slowing smartphone demand.

TSMC’s future growth opportunities

Despite this, TSMC expects its revenue to grow at a compound annual growth rate of 5%–10% through 2021. It expects smartphone demand to pick up in the long term as 5G (fifth-generation) technology rolls out in 2020. Intel (INTC) and Qualcomm (QCOM) plan to launch 5G modems as early as the end of 2018.

TSMC’s 2018 product mix

The entire semiconductor industry, including TSMC, is adapting to the shift to AI, autonomous driving, and 5G technology. The foundry is looking to reduce its exposure in the smartphone space and diversify into HPC (high-performance computing) chips such as GPUs (graphics processing unit), ASICs (application specific integrated circuit), and FPGAs (field programmable gate array).

On TSMC’s earnings call, its CEO, C. C. Wei, stated that the company would increase its revenue from HPC by 40% YoY. In 2018, TSMC expects to earn up to 25% of its revenue from HPC and 40%–43% of its revenue from smartphones.

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