Chip Maker TSMC Enjoys Boost from Cheaper Smartphones in Second Quarter

TSMC booked second-quarter revenue of $6.9 billion and expects further growth in the third quarter.
By Mariko Iwasaki ,

Taiwan Semiconductor Manufacturing (TSM) - Get Report , the world's largest semiconductor foundry by revenue, said revenue for the second quarter of fiscal 2016 beat the high end of its own guidance thanks to increased demand by mid- and low-end smartphone makers. The company expects further growth in the third quarter.

The Hsinchu, Taiwan-based TSMC saw second quarter consolidated revenue advance 8% year-on-year to NT$221.81 billion ($6.9 billion), exceeding its prediction of between NT$215 billion and NT$218 billion. Net income came to NT$72.51 billion and diluted earnings of NT$2.80 per share, each down 8.7%, but up 17.2% excluding one-off gains in the year-earlier period, the company said.

The trend described by the chip maker mirrors a recent shift in demand from high-end smartphones released by makers such as Apple ( (AAPL) - Get Report ) and Samsung to cheaper devices. Despite expectations for a slowdown in the market, global smartphone sales grew 3.9% in the first quarter for 2016, according to advisory firm Gartner as "emerging brands are disrupting existing brands' long-standing business models."

In the first quarter of 2016, both Apple and Samsung lost smartphone market share to Chinese players such as Huawei, Oppo, and Xioami, who each boosted their presence by between 2% to 3%.

Gartner forecasts smartphone sales to exhibit annual growth of 7% in 2016, down considerably from an increase of 14.4% in 2015.

For the third quarter, TSMC expects revenue to expand further to between NT$254 billion and NT$257 billion. Chief financial officer Lora Ho expects the high-end smartphone makers to play a larger role in the period. Major client Apple is expected release its new iPhone 7 later this year.

"We expect our business in the third quarter will benefit from new product launches by major mobile device customers as well as continued inventory restocking by our customers," Ho said.

TSMC was the largest semiconductor foundry by revenue in 2015, according to Gartner, accounting for 54.3% of the market, maintaining a large lead from rivals. Second player Globalfoundries secured a market share of 9.6%.

TSMC excepts the total semiconductor market to expand by 1% in 2016, according to its annual report.

The company's shares edged up 0.3% on Thursday to NT$169.

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