A Pandemic and Huawei Woes? No Problem, Says Taiwan's Chip Champion -- Heard on the Street

By Jacky Wong

Investors were dazzled today by the splashy $6.5 billion listing of China's top chip contender, Semiconductor Manufacturing International, in Shanghai, but catching the technology leaders will be challenging. Meanwhile, the world's largest contract chip manufacturer, Taiwan Semiconductor Manufacturing, keeps quietly delivering the goods.

TSMC reported on Thursday a 3% quarter-over-quarter gain in net profit for the three months ending in June, handily beating analysts' expectations of a decline, as polled by S&P Global Market Intelligence. The company is confident it can weather the Covid-19 pandemic and the loss of a major customer--Chinese telecom champion Huawei--thanks to its technology edge.

Strong demand for chips used in data centers, boosted by the surge in working from home, offset weakness in smartphones. Sales at TSMC's high-performance computing segment, which includes server chips, grew 12% from a quarter earlier, while all other segments recorded declines. Some Chinese electronic manufacturers might have stockpiled chips from TSMC, in case any future sanctions from worsening U.S.-China tensions disrupt supplies.

What is more impressive is that the company expects things to stay strong. TSMC expects revenue to increase this year more than 20% from 2019, up from its earlier forecast of mid-to-high-teens growth. It also raised its 2020 guidance on capital expenditure by $1 billion, to between $16 billion and $17 billion.

Continued strong demand from data centers as more people use services such as videoconferencing will likely help TSMC. The company, which counts Apple as its customer, also expects demand from 5G, even though fewer people will buy a new phone this year. Market-research firm IDC expects global smartphone shipments to drop 11.9% in 2020.

TSMC also expects to sustain high growth even though the company hasn't taken new orders from Huawei since the Trump administration barred companies using U.S. technology from supplying the Chinese company without first securing a license. American semiconductor equipment is essential to chip makers. Even TSMC has to rely on it and wouldn't be able to circumvent such restrictions. Huawei is estimated to have accounted for 15% to 20% of TSMC's revenue last year.

There are grounds for such optimism. Even though U.S. sanctions will greatly hurt Huawei, its rivals could quickly fill the vacuum in semiconductor demand. Due to its leading position, those rivals would have to order from TSMC, too.

Write to Jacky Wong at JACKY.WONG@wsj.com

(END) Dow Jones Newswires

July 16, 2020 07:53 ET (11:53 GMT)

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