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TSMC says 2020 revenue to jump 30% despite losing Huawei orders

Taiwan chip titan cites 5G launches and COVID-fueled demand for strong outlook

TSMC says it is "not worried" about its high inventory levels as it expects demand for high-end chips to continue into next year and beyond. (Photo by Shinya Sawai)

TAIPEI -- Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker and a key Apple supplier, expects a 30% jump in revenue this year thanks to pandemic-driven demand for digital solutions and aggressive 5G smartphone launches.

Revenue for the final quarter of 2020 could be between $12.4 billion and $12.7 billion, TSMC said on Thursday. That is higher than the market consensus and up around 20% on the year at the midpoint in dollar terms.

TSMC added that it did not factor any business with Huawei Technologies into the forecast, as it has not made any shipments to the embattled Chinese company since Sept. 15, when the latest U.S. sanctions took full effect. The Taiwanese company declined to comment on whether it has applied for a license to ship to Huawei, which Washington now requires for any company using American technologies to supply the Chinese company.

TSMC, which supplies most of the chip developers in the world, said its revenue will grow about 30% in dollar terms, while its capital spending for this year will be around $17 billion, at the high end of its previous forecast of between $16 billion and $17 billion.

TSMC CEO and Vice Chairman C.C. Wei said his company will keep the majority of its production and research and development in Taiwan despite deteriorating relations between Taipei and Beijing. China has long viewed the democratic-ruled Taiwan as part of its territory and has not ruled out taking control of the island by force.

"TSMC will continue to focus on Taiwan. That's our center of R&D and the majority of our production will continue to be located in Taiwan, regardless of the geopolitical tensions, or any kind of disruptions," Wei said.

Wendell Huang, TSMC's chief financial officer, said the result of the U.S. presidential election will not impact the company's intention to build a $12 billion chip facility in the U.S., saying, "The plan will not change if all the criteria and conditions we are looking for can still be fulfilled."

Wei also addressed investor concerns of a sudden macroeconomic slowdown, which could lead to inventory correction risks for TSMC. The company's current inventory level is above its historic high and will remain so for some time, Wei said, but he said this is because TSMC'S chip clients are trying to secure supply chain continuity amid the pandemic by placing orders further in advance than usual.

"We are not worried too much about the inventory [level]. Because of the pandemic, the digital transformation has been accelerated and that creates a lot of new demand. ... We are confident that the demand will pick up next year and in 2022, and that will mitigate any concerns over inventory correction," Wei said.

Net profit grew nearly 36% on the year in July-September to 137.31 billion New Taiwan dollars ($4.78 billion), while revenue rose 21.6% from a year ago to NT$356.43 billion.

Apple, TSMC's biggest customer, launched its first full 5G iPhone range on Oct. 13 featuring the powerful A14 mobile processor designed by the American company. They are the first smartphones to adopt chips built with the cutting-edge 5-nanometer process technologies provided by TSMC. The new iPad Air, unveiled in September, also uses the A14 chip.

Huawei's Mate 40 flagship smartphone, the company's answer to premium iPhones, will likely feature the last of its Kirin processors, which are also made using TSMC's 5-nm production tech. However, like most chip suppliers in the world, TSMC has stopped taking new chip orders from Huawei -- once its No. 2 client -- since mid-May due to the U.S. crackdown.

Though U.S.-China tensions have forced TSMC to cut ties with Huawei, the Taiwanese company's earnings have remained resilient thanks to its relatively wide customer base covering almost all the world's major chip companies -- Nvidia, Broadcom, AMD, Qualcomm, Google, Mediatek, NXP and STMicroelectronics all rely on the Taiwanese chip titan's advanced chip production capacity to churn out cutting edge chips. Even Intel, the world's biggest microprocessor maker for computers and servers, has indicated it will need to start outsourcing some chip production to overcome its own significant delays in production technology development. The U.S. company is likely to tap TSMC and Samsung as manufacturing partners.

Gokul Hariharan, an analyst with JP Morgan said in a research note that TSMC will likely increase capital expenditure to up to $20 billion next year as thanks to strong demand for high-end chips and Intel's likely outsourcing.

"We believe that this [capex expansion] could be aimed at accommodating additional demand from Qualcomm and potentially Intel, apart from the already expected strong demand from new project ramp from AMD, Mediatek, Nvidia," Hariharan said.

But some analysts warn there could be a sudden slowdown due to the prolonged pandemic and geopolitical uncertainties, which would in turn hurt electronics demand. "We are still concerned whether there will be inventory correction issues in early next year," Rick Hsu, an analyst with Daiwa Securities, said.

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