An article in the Taipei Times from 14 December 2014 further reports on TSMC's sales in Q4 2014 and its future prospects, with a senior TSMC official saying that the decline was not a suprise, as "cautious inventory adjustment actions taken by some of our customers will bring slower fourth-quarter demand". There have been reports that some clients may have double-ordered chips in the face of the capacity shortage that existed previously. TSMC's sales in Q4 2014 will still be a quarterly record based on strong demand for 4G smartphones in China and increased demand for TSMC's advanced 20nm process technology.
TSMC's Q4 2014 revenues are still projected to be near NT$220 million (about US$7.0 billion), a sequential increase of about 5% from the previous quarter, which would complete a strong 27% increase in revenues for the whole year 2014 over the previous year, extending TSMC's leadership of the foundry industry.
TSMC's revenues for 2015 are forecast to further increase by 15 to 20%, based on strong demand for 20nm chips, new chips manufactured using its 16nm FinFET process technology and continuing demand for 28nm chips, as well as demand for trailing-edge 8" wafer capacity.
Apple ramp has peaked, Android chip vendors cautious
As mentioned in the recent articles, a likely major reason for the revenue decline in November and for Q4 2014 is that Apple's production of the Apple A8 and Apple A8X processors already peaked in October in order to achieve sufficient production in time for the 2014 holiday season. Additionally, demand from Android device vendors (such as Qualcomm and MediaTek) has not picked up, so that another sales decline for December 2014 is expected.
The decline in demand appears to be concentrated in the 20nm and 28nm HPM (High-Performance Mobile) process technologies, which were earlier in extremely short supply, and are used by Apple for its A8 SoCs at 20nm, and primarily at 28nm by Qualcomm for its high-end SoCs such as the Snapdragon 800 series and by MediaTek for various mid-range chips (such as MT6592, MT6595 and MT8135V), as well as its new 64-bit SoCs (MT6732, MT6752 and MT6795) that are currently ramping.
Decreased use of TSMC-produced chips by Samsung
An important contributor to the decline in demand for mobile processor capacity at TSMC is likely to be a decline in the utilization of TSMC-produced smartphone SoCs at Samsung. Samsung has recently been facing an overall sales decrease for its smartphone business, although Q4 2014 has been projected to see a recovery. However, Samsung is aggressively increasing the use of its own Exynos series SoCs in its smartphones, especially high-end models, after reduced orders from Apple left Samsung's advanced logic fabs underutilized.
Chips like the Exynos 7 Octa perform adequately for a high-end device and have significantly decreased Samsung's reliance on Qualcomm, which manufactures at TSMC. While Qualcomm is likely to continue to sell a large number of low-cost chips such as Snapdragon 410 to Samsung, the overall product mix from Qualcomm into Samsung has likely shifted to lower-end chips that have a significantly smaller die size, and thus require significantly less wafer capacity for a given amount of chips.
Transition to smaller die size for Qualcomm's mid-range performance-oriented SoCs
For some time, Qualcomm has had a gap in its product line, with Snapdragon 400 being used for the low-end as well as part of the mid-range segment, and a large performance and cost gap to the high-end Snapdragon 800 series, while Snapdragon 600 (without integrated baseband) was out of the picture. This resulted in a relatively large amount of high-end, large die-size Snapdagon 800 series chips being used in smartphones, even for models that do not quite require that level of performance.
However, Qualcomm has introduced new SoCs such as Snapdragon 615, an octa-core Cortex-A53-based SoC with a mid-range GPU, which can address the perfomance requirements of a significant part of the performance-oriented segment at a much lower cost, importantly while consuming significantly less wafer capacity at TSMC due the smaller die size of the SoC. This product transition at Qualcomm likely contributes to lower wafer requirements for Qualcomm at TSMC as production of smaller chips like Snapdragon 210, Snapdragon 410 and Snapdragon 615 increases at the expense of Snapdragon 801/805, and as a result contributes to TSMC's revenue decline.
Product transition at MediaTek
Meanwhile, MediaTek is also in a product transition from its 3G product line to its new product line with integrated 4G baseband. Because it has been late with integrated 4G, MediaTek has come under some pressure in China, with more of its sales being concentrated at the low of the market with SoCs such as dual-core chips for worldwide export markets, which take a smaller amount of wafer capacity.
MediaTek's new mid-range performance-oriented chips such as MT6752 and MT6795 are competitive, and have the potential to reduce overall market die size requirements and improve device cost and efficiency for the performance-oriented segment. However, they, as well as the lower-end MT6732, do not address the highest-volume low-end 4G segment, which in the near term is more likely to be addressed by Qualcomm with its Snapdagon 410 and upcoming Snapdragon 210 series, the latter of which implies with further reductions in wafer requirements due to smaller die size.
Other smartphone SoC clients at TSMC
HiSilicon has been producing increasing numbers of smartphone SoCs at TSMC for use in Huawei smartphones, but may have been affected by inventory issues, and there's also evidence of HiSilicon transitioning to more cost-effective designs such as the octa-core Cortex-A53-based Kirin 620, partly displacing its existing big.LITTLE Cortex-A15/Cortex-A7-based Kirin 920/925 series, which have a relatively large die size.
Other TSMC clients for leading-edge processes
Other companies that do not concentrate on smartphones such as Broadcom (embedded communications/networking) and NVIDIA (primarily PC-class GPUs, as well as high-end tablet SoCs) may welcome the increased capacity as it gives them increased production flexibility amid strong demand for their chips.
Not good for foundry competitors
Foundry competitors such as GlobalFoundries, which are already struggling, are not likely to benefit from the alleviation of capacity constraints at TSMC, because potential clients may now be less determined into moving part of their production from TSMC to alternative suppliers such as GlobalFoundries (as well as Samsung and UMC). Moving products to new foundries involves considerable investment and time since their processes are different from TSMC's processes, and as long as TSMC has enough capacity there is little reason for clients to not concentrate production at TSMC with its industry-leading performance.
Sources: DigiTimes (TSMC November revenues) , Taipei Times (TSMC article)
Updated December 26, 2014.