TSMC notes for Q2 2010

We fixed 40nm, we are expanding and preparing for 28nm

TSMC has just released their Q210 financial statements and the picture is pretty bright. They managed to grow in sales, their margins increased and the ramp up of their 40nm process seems on track, their inventory days were almost the same and their debt is hedge only.

TSMC posted net sales of 3.3 billion USD with 1.2 billion USD in net profits. Free cash flow was negative 120 million USD, which is not bad for a company increasing profits and essentially debt free.

Their sales grew mainly because of the consumer and communications segment. The communications segment had a growth of 22% and now accounts for 41% of all sales in TSMC, and the consumer segment accounts for 15% of sales.

For the computer segment which Nvidia and ATI are the main players, this means that the supply constraints that plagued the market in the last two quarters are beginning to ease as TSMC 40nm capacity is catching up with the demand. 40nm capacity will increase with their new line but because AMD’s Ontario chip will soon begin production AMD will continue to use all of of their allocated capacity.  Good news indeed for TSMC.

The computer parts segment will be the first customers to use the 28nm process with AMD’s Northern Islands chips and whatever Nvidia throws at the market in lieu of Fermi.

The communications segment is a bit tricky. This market is showing increasing and resilient growth which is likely to last for more quarters but this is where they will find fierce competition from Samsung and Global Foundries. While TSMC management said that they don’t expect to eat margins in the next quarters, they might do it if the market gets a slower rate or if Global Foundries or Samsung adopt more aggressive behavior.

TSMC is countering this threat by building up capacity and improving their existing processes. They are increasing their CAPEX both QoQ and YoY, and management said that they are likely to increase even more. This is not only about build capacity, it is about execution. They know they need to do it right in their 28nm process so they are investing heavily this time.S|A

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Marcelo Tavares

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