The coronavirus pandemic has forced Taiwan Semiconductor Manufacturing Co (TSMC) to trim its 2020 revenue and overall semiconductor industry growth forecasts.
In its 2019 fourth quarter earnings call back in January, TSMC had forecast overall semiconductor market growth in 2020, excluding memory, to be 8% and foundry industry growth to be about 17%.
TSMC itself would "outperform the foundry revenue growth by several percentage points in US dollar term," CEO CC Wei said at the time.
During the 2020 first quarter earnings call on Thursday, however, Wei shifted from that guidance. He said, optimistically assuming COVID-19 stabilises by June, overall semiconductor industry growth excluding memory would be "flattish [or] slightly decline" and the overall foundry revenue growth would be in the "high single digits to low teens". TSMC expects its growth to be in the mid to high-teens percentage points in US dollar terms.
Wei added that TSMC hasn't seen "significant order reduction" from customers, but it would still pay attention to supply chain dislocation and weaker global demand for applications, including consumer electronics and automotive.
For the first quarter, the firm reported revenue increased 42% year on year to NT$310.6 billion (10.3 billion USD) due to high performance computing-related (HPC) and 5G smartphone growth. It predicts "flattish" revenue moving into the second quarter of between $10.1 billion and $10.4 billion.
According to Wei, the second half of 2020 would be harder to predict and might not be as great.
"Due to the market uncertainty, we adopt a more conservative view," Wei said. "We expect COVID-19 to bring some level of disruption to the end market demand."
Analysts were surprised by TSMC's optimism and agreed that 2020 sales would likely drop.
"TSMC's positive guide for this year is unusual given we are heading into an inevitable global recession," Brett Simpson, an analyst at Arete Research, told ZDNet. "But its implied 2H outlook already suggests negative [year-on-year] sales growth."
Simpson said that TSMC's strong Q1 sales growth, despite its customers reporting reduced demand for their end products, might be because of stockpiling, which is a small cost compared to the risk of running short as the market recovers. Huawei's 2019 annual report showed sales were up 19%, while inventories were also over 70% for the second year in a row.
"This surge partly reflects their concerns over restrictions imposed by the US government," he said, "but also if they are able to gain a Google licence, they want to be ready to export phones."
If Huawei and potentially other customers have stockpiled chips due to market uncertainty and wind up cutting inventories back to normal levels, TSMC's future growth could be affected, he added.
Mark Li, an analyst at Sanford C Bernstein & Co, told ZDNet there would be a correction in the second half of the year.
"Customers are building up more safety inventories as they are concerned about supply disruption caused by COVID-19," he said.
TSMC reported operating income for the first quarter of 2020 was NT$128.52 billion, up 100% year on year. Net income was up 90.6% year on year to NT$116.99 billion.
Compared to the fourth quarter of 2019, HPC revenue increased by 3%, Internet of Things revenue increased by 8%, and data communications equipment (DCE) increased by 44%. Meanwhile, smartphone revenue decreased by 9%, automotive by 1%, and others by 5%.
During the call, TSMC revealed it would maintain its capital expenditure budget for 2020 and that production of its 5-nanometre technology remained on track.
The firm also confirmed media reports that it was considering constructing a fab in the United States, but the final decision would only be made after it properly looked costs, supply chain readiness, and talent.