TSMC production mishap to drag down Q1 sales by 2%: brokerage

2019/02/05 19:41:27 fontsize-small fontsize-default fontsize-big
TSMC production mishap to drag down Q1 sales by 2%: brokerage

Taipei, Feb. 5 (CNA) A production problem in January caused by substandard raw materials will likely cost Taiwan Semiconductor Manufacturing Co. (TSMC) 1-2 percent of its sales in the first quarter, according to foreign brokerages.

An Asian brokerage said in a research note that the incident, which damaged more than 10,000 TSMC wafers, is expected to drag down the company's sales by 1-2 percent in the first quarter and affect its gross margin.

In a statement filed with the Taiwan Stock Exchange on Jan. 29, TSMC said the problem, which was identified on Jan. 19, resulted in low yields on wafers produced with the 12 nanometer and 16nm processes at TSMC's Fab 14B, a 12-inch wafer production site in Tainan.

An investigation found the problem to be caused by a batch of substandard photo-resistant materials, TSMC said, noting that the products were from "a well-performing" supplier with which the company has worked for years.

The Asian securities house said that while the incident will affect the first quarter sales of TSMC, the world's largest contract chipmaker, by 1-2 percent, the company will report deferred sales in the second quarter.

The brokerage said the Fab 14B incident has affected shipments to major TSMC clients such as U.S.-based integrated circuit designer Nvidia Corp., Chinese IC designer HiSilicon Technologies Co. and Taiwan's MediaTek Inc.

Despite the incident, the Asian brokerage said it has maintained its target price of NT$250 (US$8.13) for TSMC shares and left its "outperform" rating on the stock unchanged.

On Jan. 30, the last trading session ahead of the current Lunar New Year holiday, TSMC shares fell 0.67 percent to close at NT$221.00 on the Taiwan stock exchange, where the benchmark weighted index ended up 0.01 percent at 9,932,26. The market will open Feb. 11.

Despite the incident, TSMC decided not to revise its sales guidance for the first quarter, which projected consolidated sales of between US$7.3 billion and US$7.4 billion, down 22 percent from the previous quarter.

It attributed the decline to the typically slow first quarter, slower global economic growth, and inventory buildups in the electronics supply chain.

TSMC forecast its gross margin, which reflects the difference between revenue and cost of goods sold, to range between 43 and 45 percent in the first quarter, down 2.7-4.7 percentage points from a quarter earlier.

Meanwhile, an American securities house said it estimated TSMC will face about US$70 million in losses, equal to about 2 percent of the chipmaker's first quarter net profit.

The U.S. brokerage said it has maintained its "neutral" recommendation on TSMC shares, while leaving its target price of NT$199 unchanged.

CNA cannot identify the brokerages because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price-moving forecasts for specific stocks or the wider market.

(By Jeffrey Wu and Frances Huang)
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