TSMC’s Revenue Grows in Third Quarter despite Several Headwinds



TSMC’s revenue trend

TSMC (TSM) earns revenue by manufacturing chips for other chipmakers on its process nodes. As seen from the graph below, the first half tends to be weaker for TSMC than the second half, as it has high exposure to consumer electronics like smartphones and GPUs (graphics processing units), which witness seasonal demand in the second half.

TSMC reported double-digit YoY (year-over-year) growth in the fourth quarter of 2017 and the first half of 2018, as it benefitted from the cryptocurrency boom, which boosted demand for NVIDIA’s (NVDA) GPUs and Bitmain’s ASICs (application-specific integrated circuits). This demand vanished as the crypto boom faded in June 2018, thereby reducing the revenue growth rate in the seasonally strong second half.

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Third-quarter revenue

In the third quarter, TSMC’s revenue rose 8.2% sequentially and 2% YoY to $8.5 billion, beating the higher end of its own guidance of $8.28 billion–$8.38 billion and analysts’ estimate of $8.4 billion. This better-than-expected growth came despite its virus infection, which impacted three days of production. TSMC managed to recover ~75% of the affected shipments.

The sequential growth was driven by 35% growth in the computer market as NVIDIA (NVDA) launched its Turing GPU architecture, which TSMC manufactures GPUs for. TSMC reported 24% growth in the communication market as Apple (AAPL) launched its iPhone XS and XS Max, which use TSMC’s A12 chips. Apple is set to launch its budget offering iPhone XR in the fourth quarter, which is expected to boost iPhone shipment volumes.

TSMC’s 2% YoY growth came as it was the first to start production on the 7-nm (nanometer) node, which helped it secure new orders from Advanced Micro Devices (AMD) and other chip makers.

Revenue by process node

In the fourth quarter, TSMC earned 11% of its revenue from 7-nm, 6% from 10-nm, and 25% from 16/20 nm. The revenue contribution from 28-nm fell to 19% from 23% in the second quarter, as the process node’s utilization rate fell below 90% due to an oversupply of 28-nm chips. TSMC reduced its fourth-quarter and full-year 2018 revenue guidance as the crypto decline continues. We’ll discuss this decline next.

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