TSMC (TSM) is Having Another SoC Year!

TSMC’s stock has more than doubled in the last five years. Coincidentally that is when I started blogging about TSMC. QCOM stock has experienced a similar doubling during this time as have other TSMC customers. The question is: What is next for TSMC? As I have mentioned before, you would be better off taking stock tips from your dog but this is what I see for this year and next for TSM.

Apple will become one of TSMC’s largest customers in 2014. This is simply amazing to me as I grew up with Apple as a computer hobbyist. Apple started selling mother boards before selling complete computer systems. In fact, I was at the UC Berkeley Campus when Steve Jobs entered wearing a backpack with a Macintosh computer inside ushering in a new era of personal computing. And now Apple is one of the largest fabless semiconductor companies? It boggles the mind!

The quarterly wafer ramping numbers I have read for Apple are $0 to $700M per quarter this year starting in Q2 2014 and up from there depending on the success of the iPhone6 and iPads to be announced later this year. As I have mentioned before, I predict that the iPhone6 will break revenue records and it is filled with TSMC silicon, absolutely. Given that TSMC will ship 300,000 20nm wafers in 2014, Apple will probably consume most of them. The other SoC vendors are still scrambling to get 64-bit 20nm SoCs taped-out. Apple really disrupted the SoC business with their 64-bit A7!

In 2015 Apple business could result in an additional $1B per quarter for TSM. Based on what I heard at #51DAC the TSMC/Apple relationship will continue into the FinFET era. One interesting note; I saw quite a few Apple badges at #51DAC, which was not the case at #50DAC. Those Apple engineers are becoming more plentiful and less stealthy it seems.

QCOM however is TSMC’s largest customer. QCOM consumed a record number of wafers last year, roughly a 50% YoY increase. FinFET is the big question, will they go TSMC or Samsung? I can tell you for a fact that QCOM will not use Intel Foundry, nor will any other SoC vendor that has a choice. It may have something to do with Intel flooding the market with free 22nm SoCs? Let’s see how many of those 40 million “contra revenue” parts actually make it into consumer’s hands. Ironically Intel will be using TSMC 28nm for their new Sofia SoC but I would not expect any volumes there either unless Intel goes contra revenue again.

The latest word from #51DAC is that QCOM will straddle TSMC and Samsung for FinFET wafers to get better margins. TSMC’s margins are at an all-time high (36%) and QCOM’s are at an all-time low (16%) so you do the math. A Samsung/QCOM foundry relationship seemed like a natural fit since Samsung is one of QCOM’s largest customers but with the launch of the Samsung Exynos SoC in 2010 the two companies are now frenemies. As they say, keep your friends close but your enemies closer. That is from the book “GodFather II” by the way. Michael Corleone said, “My father taught me many things here — he taught me in this room. He taught me — keep your friends close but your enemies closer.”

The other SoC vendor that I track is MediaTek. They are literally down the street from TSMC and UMC so I see them during my Taiwan travels. MediaTek is an interesting company that has done extremely well in the low end SoC business. I view MediaTek, TSMC, and UMC as brothers so I highly doubt they would use GlobalFoundries or Samsung but it is certainly possible. In this business margins are everything.