I always enjoy listening to the TSMC quarterly conference calls. TSMC is the semiconductor bellwether and certainly the most important economic indicator for the fabless ecosystem, absolutely. He are some parts I found interesting and hope we can discuss them more here. I truly do appreciate the discussions on SemiWiki and have found them quite valuable in many different regards.
Lora Ho – Senior Vice President, Finance and Chief Financial Officer
Now let’s take a look at revenue by technology. We begin while in production of 7-nanometer process technology in the second quarter. The revenue contribution was less than 1% in second quarter, and it will ramp to above 10% in the third quarter. 10-nanometer contributed 13% of total wafer revenue during the second quarter, while the combined revenue from 16 and 20-nanometer accounted for 25%, and 28-nanometer was 23%. Advanced technologies defined as 28-nanometer and more accounted for 61% of total wafer revenue.
10nm and 7nm are all Apple so it will be interesting to see how this year's iPhone does as compared to last years. I own an iPhone X and a new iPad Pro and my personal experience has been great. Not sure if we will get a new iPhone but my guess is that we will.
Now let me make remarks on capital expenditure and profitability. I’ll first talk about the capital expenditure. In our last Investor Conference in April, we stated our 2018 CapEx budget to be between $11.5 billion to $12 billion. However, we now plan to trim our CapEx budget by about $1.5 billion and expect our 2018 CapEx to be between $10 billion and $10.5 billion...
This is a clear sign of an industry slowdown that we all expected but it is not as bad as it looks. $600M of this is a real cut, $700M is a delay, and $200M is a money exchange rate gain.
That said, TSMC’s financial objective remain unchanged. Our goal is to achieve revenue and net income compound annual growth rate in the next few years to be between 5% and 10% in U.S. dollars, gross margin to be about 50%, operating margin to be about 39% and ROE to be above 20%.
I am a bit more optimistic here. TSMC dominates 7nm and that will continues for years to come. Future nodes will require production worthy EUV and that may be pushed out a bit more, my opinion.
C.C. Wei – Chief Executive Officer and Vice Chairman
For the full year of 2018, we forecast the overall semiconductor market, excluding memory, will grow by 5% while foundry is expect to grow by about 7%. We forecast TSMC’s 2018 revenue in U.S. dollar will grow by a high single-digit rate rather than the previously stated about 10% due to general weakness in cryptocurrency mining demand.
The slowdown begins... I truly expected a double digit gain for TSMC in 2018.
We forecast a total of more than 50 customer product tape-outs by end of this year from a wide range of applications covering mobile, server CPU, network processor, gaming, GPU, FPGA, cryptocurrency, automotive and AI.
Translation: 2018 7nm will be all about Apple and no 5G chips yet?
Let me talk about the N7+ and EUV. Our 7-nanometer-plus or N7+ can leverage the success of our N7 and enjoy 15% to 20% better density and more than 10% power reduction... Volume production will start Q2 next year.
This is Apple timing so hopefully they are one of the tapeouts but I have heard otherwise. If Apple was doing EUV people would be talking about it and they are not so we shall see. 7+ is definitely a good move for TSMC for the yield learning aspect but honestly I do not see full EUV in HVM until 3nm. Today EUV layers are still in the single digits.
N5 is progressing well. The 256 megabits SRAM yieldis one quarter ahead of schedule, and the device performance is well on track. TSMC’s N5 will begin risk production in first half 2019. We believe it will be the most advanced technology in the foundry industry by that time. We are actively engaging with several lead customers, and we are running their test chip now. We expect to receive first customer product tape-out in first half 2019. Volume production is expect to start in first half 2020.
The Q&A was entertaining as always. One analyst asked if TSMC was making the AMD CPUs. The answer was no comment but yes they are. Another good one was about 7nm hitting double digits while TSMC is increasing revenue single digits so which node is dropping? Clearly it is 10nm since both 10nm and 7nm are Apple this year. Mark Lui even said 7nm will be the strongst node in TSMC history to which I agree. TSMC says 7nm is 10% revenue in Q3, 20% in Q4 and more than 20% of revenue in 2019.
EUV was discussed in more detail but I still believe 5nm will be a half node skipped by many in favor of 3nm which will have better EUV coverage. China tensions and IP theft was discussed a bit as well.
Mark Liu
Yes, this is the – actually, this is the core of China-U. S. trade tension and we take it very seriously, too. And theft can come – we call it espionage can come from everywhere, not just from one country or there are sometimes the indirect that come to the – getting our proprietary information. I can only say that we are fiercely protecting our IP and information because those are – IP information is originally developed TSMC over the past – more than 30 years and that is ours. No other states can take it or putting the effort to espionage. That is the main focus among all this tension.
Unfortunately I think it is worse than expected. From what I have heard Tsinghua Unigroup is building a mega fab near the TSMC Nanjing fab that will use the same contractors, equipment etc... TSMC employees are being poached at huge premiums and it is all about FinFETS. I'm sure TSMC is well aware of this and are taking safeguards but given the complexity of FinFET manufacturing (SMIC and UMC are still struggling with it) I do not see China winning here. You also need an ecosystem and being part of an ecosystem of a company that steals from TSMC will be career limiting to say the least.
Packaging was discussed quite a bit, which is certainly important, but I will skip it for now unless someone has questions. I have attached the slides. You can see a transcript here.
Lora Ho – Senior Vice President, Finance and Chief Financial Officer
Now let’s take a look at revenue by technology. We begin while in production of 7-nanometer process technology in the second quarter. The revenue contribution was less than 1% in second quarter, and it will ramp to above 10% in the third quarter. 10-nanometer contributed 13% of total wafer revenue during the second quarter, while the combined revenue from 16 and 20-nanometer accounted for 25%, and 28-nanometer was 23%. Advanced technologies defined as 28-nanometer and more accounted for 61% of total wafer revenue.
10nm and 7nm are all Apple so it will be interesting to see how this year's iPhone does as compared to last years. I own an iPhone X and a new iPad Pro and my personal experience has been great. Not sure if we will get a new iPhone but my guess is that we will.
Now let me make remarks on capital expenditure and profitability. I’ll first talk about the capital expenditure. In our last Investor Conference in April, we stated our 2018 CapEx budget to be between $11.5 billion to $12 billion. However, we now plan to trim our CapEx budget by about $1.5 billion and expect our 2018 CapEx to be between $10 billion and $10.5 billion...
This is a clear sign of an industry slowdown that we all expected but it is not as bad as it looks. $600M of this is a real cut, $700M is a delay, and $200M is a money exchange rate gain.
That said, TSMC’s financial objective remain unchanged. Our goal is to achieve revenue and net income compound annual growth rate in the next few years to be between 5% and 10% in U.S. dollars, gross margin to be about 50%, operating margin to be about 39% and ROE to be above 20%.
I am a bit more optimistic here. TSMC dominates 7nm and that will continues for years to come. Future nodes will require production worthy EUV and that may be pushed out a bit more, my opinion.
C.C. Wei – Chief Executive Officer and Vice Chairman
For the full year of 2018, we forecast the overall semiconductor market, excluding memory, will grow by 5% while foundry is expect to grow by about 7%. We forecast TSMC’s 2018 revenue in U.S. dollar will grow by a high single-digit rate rather than the previously stated about 10% due to general weakness in cryptocurrency mining demand.
The slowdown begins... I truly expected a double digit gain for TSMC in 2018.
We forecast a total of more than 50 customer product tape-outs by end of this year from a wide range of applications covering mobile, server CPU, network processor, gaming, GPU, FPGA, cryptocurrency, automotive and AI.
Translation: 2018 7nm will be all about Apple and no 5G chips yet?
Let me talk about the N7+ and EUV. Our 7-nanometer-plus or N7+ can leverage the success of our N7 and enjoy 15% to 20% better density and more than 10% power reduction... Volume production will start Q2 next year.
This is Apple timing so hopefully they are one of the tapeouts but I have heard otherwise. If Apple was doing EUV people would be talking about it and they are not so we shall see. 7+ is definitely a good move for TSMC for the yield learning aspect but honestly I do not see full EUV in HVM until 3nm. Today EUV layers are still in the single digits.
N5 is progressing well. The 256 megabits SRAM yieldis one quarter ahead of schedule, and the device performance is well on track. TSMC’s N5 will begin risk production in first half 2019. We believe it will be the most advanced technology in the foundry industry by that time. We are actively engaging with several lead customers, and we are running their test chip now. We expect to receive first customer product tape-out in first half 2019. Volume production is expect to start in first half 2020.
The Q&A was entertaining as always. One analyst asked if TSMC was making the AMD CPUs. The answer was no comment but yes they are. Another good one was about 7nm hitting double digits while TSMC is increasing revenue single digits so which node is dropping? Clearly it is 10nm since both 10nm and 7nm are Apple this year. Mark Lui even said 7nm will be the strongst node in TSMC history to which I agree. TSMC says 7nm is 10% revenue in Q3, 20% in Q4 and more than 20% of revenue in 2019.
EUV was discussed in more detail but I still believe 5nm will be a half node skipped by many in favor of 3nm which will have better EUV coverage. China tensions and IP theft was discussed a bit as well.
Mark Liu
Yes, this is the – actually, this is the core of China-U. S. trade tension and we take it very seriously, too. And theft can come – we call it espionage can come from everywhere, not just from one country or there are sometimes the indirect that come to the – getting our proprietary information. I can only say that we are fiercely protecting our IP and information because those are – IP information is originally developed TSMC over the past – more than 30 years and that is ours. No other states can take it or putting the effort to espionage. That is the main focus among all this tension.
Unfortunately I think it is worse than expected. From what I have heard Tsinghua Unigroup is building a mega fab near the TSMC Nanjing fab that will use the same contractors, equipment etc... TSMC employees are being poached at huge premiums and it is all about FinFETS. I'm sure TSMC is well aware of this and are taking safeguards but given the complexity of FinFET manufacturing (SMIC and UMC are still struggling with it) I do not see China winning here. You also need an ecosystem and being part of an ecosystem of a company that steals from TSMC will be career limiting to say the least.
Packaging was discussed quite a bit, which is certainly important, but I will skip it for now unless someone has questions. I have attached the slides. You can see a transcript here.
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