Against a backdrop of low expectations for mobile chip suppliers in general and Apple(AAPL) - Get Report suppliers in general, Taiwan Semiconductor(TSM) - Get Report managed to beat second-quarter estimates and provide above-consensus guidance. That appears to be giving a lift to Apple and several iPhone/iPad suppliers.
Ahead of the iPhone 7's expected September debut, TSMC, which partly handles the production of Apple's A-series processors and also manufactures chips for Apple suppliers such as Cirrus Logic (CRUS) - Get Report, Broadcom (AVGO) - Get Report, Qualcomm(QCOM) - Get Report and InvenSense (INVN) , guided for third-quarter revenue of NT$254 billion-NT$257 billion ($7.87 billion-$7.97 billion). That's above an NT$250.1 billion Bloomberg consensus, and implies 20% annual growth at the midpoint.
Apple, Cirrus and Broadcom easily outperformed the Nasdaq today, as did iPhone RF chip suppliers Skyworks(SWKS) - Get Report and Qorvo (QRVO) - Get Report, and microphone supplier Knowles (KN) - Get Report. TSMC slightly outperformed -- shares may have been held back by concerns over the company's decision to hike its 2016 capital spending budget by $500 million to a range of $9.5 billion-$10.5 billion.
TSMC's sales growth forecast is likely fueled in part by share gains with Apple. Whereas the A9 processor that goes into the iPhone 6S is produced by both TSMC and Samsung, TSMC is reportedly the exclusive supplier of the A10 processor expected to power the iPhone 7. Also: TSMC notes it's seeing healthy demand for chips going into low-end and mid-range Chinese Android phones, a market several of the aforementioned Apple suppliers also have strong exposure to.
In spite of its guidance, TSMC lowered its 2016 smartphone sales growth forecast to 6% from 7%. But with third-party forecasts even lower -- IDC expects just 3.1% growth this year -- the revision is being brushed off.
Meanwhile, even if A-series share gains and low-end Android demand are playing roles, TSMC's Q3 sales outlook is still welcome news for Apple, considering how low 2016 iPhone expectations have become. Due to soft iPhone 6S demand, Apple has guided for calendar Q2 revenue to be down 13%-17% annually, and a slew of reports suggest the iPhone 7 will feature only moderate improvements relative to the 6S, with 2017 models packing a bigger punch.
But while TSMC's guidance is a positive for Apple, its capex guidance hike is a negative for Intel (INTC) - Get Report, as the additional spending will further TSMC's efforts to end Intel's traditional manufacturing process edge. On its earnings call, TSMC said it expects revenue from design wins for its next-gen 10-nanometer manufacturing process to arrive in Q1 2017. Intel, which has been spending cautiously on capex in recent years, doesn't plan to begin selling its first 10-nanometer processors until the second half of 2017.
Intel's 10-nanometer process is believed to be more advanced than TSMC's. But TSMC plans to follow up on its 10-nanometer launch by starting mass-production for its 7-nanometer process in early 2018. Intel hasn't given a launch date for its first 7-nanometer chips; given the recent pace of Intel chip platform launches, some think they might not arrive before 2020.
This creates an opportunity for Intel rivals relying on TSMC -- the list includes Qualcomm, Broadcom, Nvidia (NVDA) - Get Report, Cavium CAVM, Xilinx(XLNX) - Get Report and several others -- to have a manufacturing process edge against Intel. And from the looks of things, TSMC is spending what's needed to make sure its clients can take advantage of the opportunity.