TSMC Lowers Expectations for 28nm Revenue in 2011

Sales of 40nm Chips Now Account for 26% of TSMC's Revenue

by Anton Shilov
08/10/2011 | 03:33 PM

As adoption of the latest 40nm process technology is growing among the clients of Taiwan Semiconductor Manufacturing, the world's largest contract maker of semiconductors is lowering its expectations for its next-generation 28nm node. According to the company, by the end of the year only 1% of its revenue will come from sales of wafers processed using 28nm fabrication process.

 

"We reported earlier that we had tape-outs for 89 individual products on 28nm and the tape-outs of each of those is on schedule. The first silicon of every tape out was fully functional with consistently satisfactory yield. [...] The ramp of 28nm is taking longer than expected, though, due to softening economy and the demand outlook in 2011," said Morris Change, chief executive officer and the chairman of TSMC, during a conference call with financial analysts.

Apparently, some customers simply do not want to start volume production using next-generation process technology this year due to uncertainties caused by weak economy. As a consequence, TSMC substantially lowered its expectations regarding the contribution of 28nm node to the company's revenue in Q4 to 1%, down from 2% - 3% predicted early this year. TSMC stresses that the quality of chips made using 28nm fabrication process is good.

"The delay of the 28nm ramp up is not due to a quality issue, we have very good tape-outs. The delay of ramp up is mainly because of softening economy for our customers. So, customers delayed the tape-outs. The 28nm revenue contribution in the Q4 2011 will be roughly about 1% of total wafer revenue," said Lora Ho, senior vice president and chief financial officer or TSMC.

But while there is less optimism about 28nm process technology than previously, it looks like 40nm manufacturing process is about to become the main revenue driver for TSMC. In Q2 2011 40nm wafers accounted for approximately 26% of TSMC's wafer sales.

Due to the weakened economic condition that caused slower demand for certain technologies, TSMC has revised down its capacity expansion plan for 2011. Current capacity plan calls for an overall increase of 17% year-over-year to 13.248 million 200mm-equivalent wafers, compared with 13.476 million 200mm-equivalent wafers planned in the last quarter. Under the current plan, 300mm wafer capacity will increase 30% in 2011.

Total managed capacity was 3.318 million 200mm-equivalent wafers in Q2 2011, increased by 8.3% from 3.063 million in Q1 2911. TSMC managed capacity is expected to increase by 3.2% in Q2 2011 to reach $3.423 million 200mm-equivalent wafers.

TSMC recently announced consolidated revenue of NT$110.51 billion ($3.811 billion), net income of NT$35.95 billion ($1.239 billion), and diluted earnings per share of NT$1.39 (US$0.24 per ADR unit) for the second quarter ended June 30, 2011. Year-over-year, second quarter revenue increased 5.3% while both net income and diluted EPS decreased 10.8%. Compared to first quarter of 2011, second quarter of 2011 results represent a 4.9% increase in revenue, and a 0.9% decrease in both net income and diluted EPS.  In USDs, second quarter revenue increased 6.5% from the previous quarter and increased 16% year-over-year. Gross margin for the quarter was 46%, operating margin was 34.3%, and net margin was 32.5%.