TSMC raises capex more than expected

April 26, 2012 — TSMC (NYSE:TSM) announced Q1 consolidated revenue of NT$105.51 billion, net income of NT$33.47 billion, and diluted earnings per share of NT$1.29 (US$0.22 per ADR unit) for the first quarter ended March 31, 2012.

28nm process technology accounted for 5% of total wafer revenues, 40nm was 32%, and 65nm was 26%. These advanced technologies accounted for 63% of total wafer revenues.

Due to stronger demand for TSMC’s 28nm technology and the pull-in of a 20nm R&D process line, the foundry raised its estimate for 2012 capital expenditures from $6 billion to $8-8.5 billion. $1.3-1.5 billion of the new capex budget will be spent on 28nm; $0.7 billion on the 20nm rollout; $200 million on sub-component such as embedded flash; and $100M for back-end capacity. TSMC also announced that it will ramp Fab 15 28nm capacity to 50k wafer starts per month (wspm) by year-end, vs. 40k wspm in its previous plan, with overall 300mm capacity +17% over 2011, reports Citi. “While the increase has been well telegraphed, the magnitude is higher than consensus of $7.5 billion,” said analysts at Citi.

TSMC CEO Dr. Morris Chang confirmed that the expansion is to meet higher demand, not to compensate for yield issues, reports Barclays Capital. Mobile customers are a greater percent of the mix than anticipated, Chang said.

With the worst of the supply shortage behind them, TSMC expects to have supply and demand close to balanced by Q4 2012, and completely caught up by the following quarter. TSMC’s 2012 capex plans are H2 loaded, with any further increases likely to turn over to Q1 2013.

In March, Citi’s Terence Whalen reported widespread concern over conservative 28nm capacity plans at TSMC: TSMC could meet only 60% of Qualcomm’s demand for 28nm capacity; Nvidia could not get its desired 28nm allocation; smaller customers saw their 28nm plans unmet by the foundry.

In light of the increase, Barclays Capital is maintaining its official view of flat capex spending in 2012, but with the potential for up to 5% growth over 2011.

For Samsung, Intel (NASDAQ:INTC), and TSMC, the time has come to "put the hammer down" and position themselves as the strongest and most dominant IC suppliers in the industry, IC Insights said earlier this year. Citi expects Samsung to increase its capex soon from $13 billion to around $16 billion. The disparity is getting so large that these three are likely to become completely dominant in their areas of specialization, if they are not already there. These 3 companies will account for about half of the total semiconductor capex spending in 2012.

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