TSMC benefits from demand for high-tech smartphone chips

Smartphone demand has been higher than expected, TSMC reported

Taiwan Semiconductor Manufacturing Co. said its net profit in the first quarter increased by 21 percent year-over-year on better than expected demand for smartphone chips.

The world's largest contract chip maker said its net profit reached NT$47.9 billion (US$1.6 billion), up from NT$39.6 billion in the same period a year ago. Revenue was NT$148.2 billion, increasing by 11.6 percent year-over-year, and slightly exceeding the company's projections for the quarter.

The company expects strong earnings this year, with revenue projected to maintain double-digit growth, TSMC's Chairman Morris Chang said back in January. Driving TSMC's growth is demand for chips made with its 28-nanometer manufacturing process, which can produce faster and more power-efficient processors than older technologies.

On Thursday, TSMC was even more optimistic. During an earnings call, the company's Co-CEO Mark Liu said that the first quarter is typically a weaker period for demand, but since January the company has seen "strong orders."

Demand for smartphones has been high, especially as more carriers are deploying 4G networks, and need handsets with LTE connectivity. In addition, TSMC's clients want more "silicon content" on smartphones, Liu said. This includes adding features to mobile processors, including more modems and 64-bit multi-core computing, he added.

Already, processors made by TSMC's 28-nanometer process make up 34 percent of its chip revenue. The company counts mobile chip vendors Qualcomm, Nvidia, and Apple as customers.

TSMC will also start using its 20-nm manufacturing process this year, and anticipates it making up for 10 percent of the company's chip revenue in 2014. Chips made at the 20-nanometer level can offer 30 percent higher speeds, and 25 percent less power over TSMC's 28-nm technology.

Increasingly, more vendors want to use the chip's newest manufacturing technologies, TSMC's Liu said. Some of this has been driven by Apple's announcement last year that its latest iPhone uses a 64-bit mobile chip, instead of 32-bit computing.

"That transition has indeed brought a lot of attention of the product development back to 28 and 20-nanometer product design," he said. "Indeed, we see increased demand for 20-nanometer this year, as well as next year."

In the second quarter, TSMC expects its revenue will reach NT$180 billion and NT$183 billion.

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