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3 Things Taiwan Semiconductor Mfg. Co. Ltd. Management Wants You to Know

By Ashraf Eassa - Jan 15, 2016 at 9:56AM

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The world's largest contract chip manufacturer offers some very interesting insight into its business on its fourth quarter earnings call.

On Jan. 14, the world's largest contract chipmaker, TSMC (TSM -2.26%), reported its financial results for the fourth quarter of 2015 and issued guidance for the first quarter of 2016. The company's results for the fourth quarter were a little better than expected and its guidance for the first quarter of 2016 was about in-line with what analysts expected.

However, the quarterly numbers and near-term guidance aren't the only things that investors with longer-term time horizons should pay attention to. Management commentary is often quite helpful in trying to get a read on where the business is headed and whether a company will thrive in the coming years.

With that in mind, here are three key points from TSMC's most recent earnings call that I believe should be of significant interest to current and potential shareholders in the chip giant.

Significant market share gains at 14/16-nanometer node expected
Back in 2014, TSMC management admitted that it would lag its biggest rival in the contract chip manufacturing business, Samsung (NASDAQOTH: SSNLF), in terms of market share during 2015. The company did, however, expect to capture the majority of market share at this technology node during 2016 and beyond.

During the call, TSMC Chairman Morris Chang gave an update to these expectations. According to Chang, TSMC grabbed around 40% of the 14/16-nanometer foundry market share in 2015 but he expects the company to capture north of 70% of 14/16-nanometer foundry market share in 2016.

Give me the info on InFO
One interesting new technology that TSMC has been playing up for quite some time is its upcoming InFO-WLP chip packaging technology. In a nutshell, this technology should allow for chips to deliver both better power/performance as well as to be slimmer compared to traditional chip packaging technologies.

During the call, TSMC co-CEO C.C. Wei said that the company will begin volume production of this packaging technology during the second quarter of 2016. Although he cautioned that the current generation of InFO packaging technology is "very custom" to customers' specific designs, it will not see adoption by all that many customers.

The good news, though, is that TSMC will be focusing on a handful of very high volume customers with this technology. TSMC didn't name specific customers, but did say that the technology would be found in both mobile products as well as Internet of Things devices.

All told, the company expects to see quarterly revenue contribution from this technology to swell to $100 million by the fourth quarter of 2016.

Updates on the upcoming 10-nanometer technology (and beyond)
During the call, TSMC executives also provided some updates on future chip manufacturing technology beyond the current generation 16-nanometer FinFET process that's currently in production.

The company says that its 10-nanometer technology development is "on track" with the current focus being on yield learning. TSMC expects this technology to be complete this quarter, with customer product tape outs also beginning in the quarter.

Management expects that by the fourth quarter of 2017, revenue from 10-nanometer wafers (on a quarterly basis) should make up a larger percentage of its revenue than 20-nanometer did in the final quarter of 2014 (which, for reference, was about 21%).

Looking beyond 10-nanometer, TSMC says that its 7-nanometer technology should go into production during the first half of 2018 and that its 5-nanometer technology -- which the company says it has been working on for over a year -- should begin mass production around two years after 7-nanometer does.


 
 

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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