Samsung Outruns Taiwan Semiconductor in 2015

Shares of Taiwan Semiconductor (NYSE: TSM  ) plunged today following the company's earnings call. Interestingly enough, this isn't due to any financial weakness -- the company beat for the most recent quarter, and guided higher than expectations for the coming quarter. No... what's probably driving the stock is that the company made some discouraging remarks on its earnings call with respect to its likely market share position at the 16 FinFET node.

First order of business -- when does 16 FinFET go into production?
There's been a lot made about when TSMC will go into production on its 16 FinFET manufacturing technology. Though some were claiming that it would go into mass production during the first half of 2015, this seemed too aggressive and -- based on hints from the semiconductor equipment suppliers -- I have been calling for mid-to-late 2015.

On TSMC's call, Chairman Morris Chang had the following to offer with respect to the timing of 16 FinFET production: "Volume production of 16 nanometer is expected to begin in late 2015 and will be fast ramped up in 2016. The ecosystem for 16 nanometer designs is current and ready."

Later in the call, TSMC was questioned with respect to the timing and magnitude of the revenues from 16 FinFET expected during 2015. TSMC's management expects that the revenue contribution by the fourth quarter of 2015 is likely to be in the "single-digit range."

It gets worse
On the call, not only does TSMC expect 16 FinFET revenues to not be all that meaningful during 2015, but it expects to have lower share than its major competitor. (This competitor, which TSMC didn't explicitly name, is Samsung (NASDAQOTH: SSNLF  ) .)

There have been rumors that the recent Samsung/GLOBALFOUNDRIES fab sync was done largely in service of Apple. Now, it's well known that this year, Apple will be building most of -- if not all of -- this year's A8 chip at Taiwan Semiconductor using its 20-nanometer manufacturing technology. However, given TSMC's statements about 16 FinFET mass production time lines, it looks as though it will not be building the follow-on A9 processor on its 16 FinFET node -- at least to begin with.

It seems that the Samsung/GLOBALFOUNDRIES team "won" those orders, as Digitimes had reported earlier.

Game over for TSMC, or just a speed bump?
At the end of the day, Taiwan Semiconductor's total revenue/profitability doesn't come just from the leading edge -- it makes a mint from older, fully depreciated nodes. However, if Samsung really has managed to outrun Taiwan Semiconductor at the leading edge, this is at the very least a PR blow and, at worst, an indication that the company's longer-term operating margins/profits -- as well as its revenue growth -- are set to come down as Samsung gets more aggressive.

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  • Report this Comment On July 16, 2014, at 8:54 PM, ShonsayaSuz wrote:

    What confuses me is that Apple made a contract with Taiwan Semi Conductor Mfg. Co. for their chips. Then I read that Sansung is getting the work and even more confusing Goldman Sachs is negative about Taiwan, yet the CEO of Taiwan, Morris Chang, has jointed the Board of Directors at Goldman Sachs. Can anyone tell me what is going on here? What is true and what is fiction?

  • Report this Comment On July 16, 2014, at 9:32 PM, TMFAeassa wrote:

    ShonsayaSuz,

    It is *extremely* likely that Apple is using Taiwan Semiconductor Mfg. Co. for this year's A8 processor. It's the next iPhone/iPad processor -- presumably called the A9 -- that looks as though it's going back to Samsung (or to GloFo which is licensing Samsung's manufacturing tech).

    This is all we can reasonably deduce so far.

    Fool on,

    --AE

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