Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) Q2 2018 Earnings Conference Call - Final Transcript

Jul 19, 2018 • 02:00 am ET

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Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Executive
Lora Ho

7-nanometer that is expected to dilute our gross margin by more than 1 percentage point in the third quarter, and the lower contribution from 28-nanometer. The net gain in gross margin, therefore, is expected to be slightly more than 1 percentage point.

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 US dollars, gross margin to be about 50%, operating margin to be about 39% and ROE to be above 20%. This ends my remark. Now let me turn the microphone to C.C. for his comments.

Executive
C.C. Wei

Thank you, Lora. Good afternoon, ladies and gentlemen. Let me start with our near-term demand outlook. We conclude our second quarter with revenue of TWD233.3 billion or $7.85 billion, in line with our guidance given three months ago. This result reflected mainly a stronger demand from high-performance computing, including cryptocurrency mining, but it was offset by seasonal decline in high-end smartphones.

Moving into third quarter 2018. Our business is expected to benefit from new product launches using TSMC's industry-leading 7-nanometer technology, while cryptocurrency mining demand will decline due to weakening cryptocurrency prices. That being said, we do see slight improvement in smartphone demand in second half of this year as compared to our forecast three months ago. GPU demand for AI in the gaming continue to increase.

For the full year of 2018, we forecast the overall semiconductor market, excluding memory, will grow by 5% while foundry is expected to grow by about 7%. We forecast TSMC's 2018 revenue in US dollar will grow by a high single-digit rate rather than the previously stated about 10% due to general weakness in cryptocurrency mining demand.

Now let me move to long-term business growth driver. As we stated three months ago that we are optimistic about the development of the industry's mega trend, particularly AI and 5G communication. Recently, we have observed more promising development. For example, we see AI continues to fast proliferate from data center to edge server and to end client devices. As for 5G, major operators in several countries have roll out the development schedule, while multiple ODMs and IC vendors have planned their 5G products, which are set to ramp in the coming two years. Despite the slowing unit growth in smartphones in the near term, we expect the development of 5G while fuel the next wave of smartphone growth both in units and in silicon content.

In HPC, we expect the increasing workload in data center and complexity of AI will boost the demand for AI accelerator, GPU and CPU in server. We also expect the introduction of next-generation video gaming will add growth of HPC. We believe all our four core platforms -- smartphone, HPC, IoT and automotive -- are well positioned to benefit from the longer-term mega trend of AI and 5G. With our leading and comprehensive technology offering our vast capacity and our policy