Mobile Demand Expected to Recover from 3Q20
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
Despite Covid-19, TSMC reported solid 1Q20 results, voicing optimism towards semiconductor market conditions. From 3Q20, we expect mobile demand (which has been sluggish in 1H20) to recover, while server demand (which has proved solid) will likely slow to some degree.
TSMC announces 1Q20 results, showing optimism towards semiconductor market conditions
In a recent conference call, TSMC announced its 1Q20 results and offered a better-than-expected outlook for the mobile market. The firm logged 1Q20 revenue of NTD310.6bn (-2% q-q, + 42% y-y) and OP of NTD128.5bn (+3% q-q, +100% y-y), with OP exceeding consensus by 8%. Smartphone-oriented product revenue fell 9% q-q, while high-performance computing product revenue climbed 3% q-q. Of note, the company mentioned experiencing no Covid-19-related disruptions to production.
In the conference call, the company predicted that the 2020 semiconductor market (excluding memory) will remain flat y-y, with the foundry market growing in the single-digit~low teen percentage range y-y and TSMC outpacing the market average with growth (y-y) in the mid/high teens. We compare this with the previous 2020 outlook of +8% y-y for the semiconductor industry (excluding memory) and +17% y-y for the foundry market. Despite Covid-19, the forecast adjustments appear limited, as the HPC sector remains relatively robust thanks to demand for telecommuting, etc and only a handful of companies (including TSMC) are capable of manufacturing the latest sub-7nm chips.
TSMC’s outlook for the smartphone market is also optimistic. The firm expects y-y smartphone shipment decline to arrive within the high-single-digit percentage range in 2020, while the market is forecasting a drop of 20% y-y. The company also remains upbeat towards 5G smartphone effects. We note that media reports indicate that TSMC has recently received additional orders for Apple’s 5G 5nm AP.
Server demand (which was solid in 1H20) may slow in 2H20
We believe that the mobile market, including the extremely sluggish smartphone market of 1Q20, may see a rebound in 2H20. In an effort to boost its economy following the impact of Covid-19, the Chinese government is actively working to enhance its 5G infrastructure, and 5G smartphone subsidies are likely to be offered in the future. Meanwhile, the new iPhone SE model announced by Apple on Apr 15 is expected to show healthy sales in the low/mid-end handset market, thanks to its robust performance relative to price point.
On the other hand, it is negative for the semiconductor industry that data center investment, which was strong in 1H20, is likely to slow in 2H20. Google’s CEO has said via email that the company plans to reduce investment in data centers and marketing due to Covid-19. We note that the revenue base for hyperscalers such as Google and Facebook (the largest investors in data centers) is ad revenue. If the real economy collapses due to Covid-19, ad execution will likely decrease and hyperscalers’ investment may slow. From 3Q20, semiconductor demand by application is expected to improve in the mobile sector and slow in the server arena.