Earlier today, Barclays issued a report about Apple iPhone 5 sales, and how the numbers looked strong for the foreseeable future. Barclays notes that Apple’s strong sales will also help or hinder other companies. Today, they specifically pointed out Taiwan Semiconductor Mfg. Co. Ltd. , as a possible victim. They note that there are cons for the world’s largest dedicated independent semiconductor, but they list both the positives and negatives in the report.
Pros of the Apple Inc. (NASDAQ:AAPL) orders: 1) They estimate that Taiwan Semiconductor Mfg. Co. Ltd. (TPE:2330) (NYSE:TSM) will manufacture A7-like ARM CPUs for Apple starting in 1Q14E for tablets or ARM-based notebooks by ramping up 60-80k per month 20nm HKMG/16nm FinFET 12-inch wafer capacity by 4Q15E. 2) By factoring in the ramping up of the Apple orders, they raise their sales estimates for 2014 to growth of 14% y/y from 7% y/y as they increase their EPS estimate by 5% for 2014 to NT$6.09 (from 2% y/y growth to 7% y/y). And 3) TSMC might see less direct competition from Samsung, as Samsung can leverage less on Apple new orders to drive its process upgrade to 22/16/10nm.
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Cons of the Apple Inc. (NASDAQ:AAPL) orders: 1) They estimate that Taiwan Semiconductor Mfg. Co. Ltd. (TPE:2330) (NYSE:TSM) will need to invest US$3.5-5bn per year in capacity to meet the orders for Apple, boosting capex to US$12.5-14bn for 2014/15E from US$8-10bn for 2013E. This should result in TSMC’s sales as a percentage of debt financing rising to 15% for 2014E and 10% for 2015E due to its shortage of cash.
2) Given that they estimate a US$4,000-4,500 per wafer price for a 35-40% gross margin for the Apple Inc. (NASDAQ:AAPL) orders, they believe it is inevitable that Taiwan Semiconductor Mfg. Co. Ltd. (TPE:2330) (NYSE:TSM)’s gross margin will contract to 40% (+/-2%) for 2014/15E compared with the corporate average of 45-50% for the past five years. And 3) in-sourcing might drive more orders cuts by Samsung toward TSMC’s higher-margin ARM APs, baseband ICs and Bluetooth/WiFi IC customers.
(Disclosure: No position in any securities mentioned in this article)