The semiconductor industry is heavily impacted by results of TSMC that accounts for approximately half of the foundry industry. The company reported 3rd quarter results yesterday and as usual gave some insight into the industry.
Although revenues were up to approximately the same level as the same quarter last year, inventories went up once more indicating a potential slowdown. Although TSMC was reasonably upbeat indicating a 6% /year growth rate they did reveal that their customers’ inventories also were increasing. Some of this effect can be down to Apple’s launch of new iPhones although this was not mentioned specifically.
There has been a major shift in technology over the last quarter towards 10nm technology that is likely to have a negative impact on revenue. 10nm technology allows TSMC to deliver more to the customers for the same price and it looks like the entire productivity gain has been given to the customer.
TMSC was upbeat about future capital investments and expected to open several lower geometry fabs over the next couple of years, down to 3nm. This could be true although the numbers for the quarter show a drop in CapEx below the depreciation level indicating a contraction in manufacturing capacity. The CapEx is lower than the replacement investments needed to maintain the current level. This might not be a signal as CapEx requirements can shift significantly over time but it could hint at TSMC delaying investments as a result of a change in the market conditions.
From a market perspective, communication and consumer keep losing share. This is in line with the general market trends of Smartphone consumption is under pressure from high memory pricing and from lower cost Chinese phones gaining market share on high feature flagship phones.
Interestingly TSMC is growing its industrial business indicating that the IoT revolution is finally hitting the money and not just a paper tiger anymore.
The computing segment also saw a jump in revenue coincides with the jump in 10nm revenue. It would be surprising if there is not a connection. Nvidia reported an increase in their Cost of Sales of approximately 200M$ in their last reported quarter which would move the needle 2,5% for TSMC. These data could be hinting at a good next quarter for Nvidia.
TSMC themselves report solid growth in cryptocurrency mining to 350-400M$ in Q3. This is mainly High-performance computing Asics and not revenue from GPU that is used for cryptocurrency mining. The implications could be negative for Nvidia as GPU graphics cards have been used for crypto currency mining but could be in the process of being replaced with very specialised ASIC processors.
The company is estimating the (Foundry) High-Performance Computing TAM to be 11.5B$ in 2017. The two major players AMD and Nvidia have a cost of sales of approximately 3,5B$ and 3B$ and is accounting for more than half of the market. TSMC’s HPC market share is in the ballpark of 30% or 3.5B in 2017.
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