TAIPEI -- Taiwan Semiconductor Manufacturing Co.'s quarterly profit made a comeback thanks to demand for Apple's new iPhone and fifth-generation wireless communication equipment, in another sign that the global chip market is rousing itself from an 18-month slump.
The world's largest contract chipmaker, a bellwether for the semiconductor industry, upgraded its capital spending for the fiscal year to record levels based on the positive results.
"I could not have predicted that 5G-related demand for semiconductors would expand this much," CEO C.C. Wei said at an earnings briefing Thursday in Taipei.
July-September operating profit rose for the first time in five quarters, growing 13% to 107.8 billion New Taiwan dollars ($3.5 billion), a record for this period. Net profit grew 13% to NT$101 billion, 5% above analyst forecasts compiled by Refinitiv.
TSMC's results follow a bounce in earnings at South Korea's Samsung Electronics, the world's top memory chip maker.
Wei said he was confident that the industry would recover based on demand for semiconductors used in 5G networks, which will go live in much of the world starting next year.
TSMC facilities that produce cutting-edge chips, used for advanced applications such as 5G, are already in "full operation," Wei said, and company will quickly increase production. TSMC has significantly raised its 2019 capital spending plan in just three months from the July announcement. It now plans to spend a record $14 billion to $15 billion, 40% to 50% higher than in a typical year.
Orders for semiconductors used in 5G base stations from Huawei Technologies and other telecom equipment makers are increasing. Orders for products with 7-nanometer circuit widths, which are vital to improved performance, are already full. Next year, a new rush for chips used in smartphones that support 5G is expected.
The U.S.-China trade war played a major role in depressing chip demand over the past 18 months. While tensions between the world's top two economies are expected to continue, the global movement toward 5G has given the semiconductor industry a much-needed boost.
TSMC and Samsung are closely watched as leading players in chipmaking's two main fields, the former in processors and the latter in memory.
TSMC's stock price has risen by over 30% since the beginning of the year and is at record levels. The apparent cease-fire in the US-China trade war is also providing boost, and the U.S. Philadelphia Semiconductor Index (SOX), which consists of major global semiconductor stocks, reached a record high on Oct. 15.
When Samsung reported a quarter-on-quarter gain in its July-September operating profit, many observers took it as a sign the market had bottomed out.
But some voices say it is too early to tell. "A recovery in memory chips is still a little ways ahead," says Toshio Hiroe, CEO of Japan's Screen Holdings, a semiconductor industry supplier.
TSMC's Wei said depending on how the trade war unfolds, the semiconductor industry may suffer.