Taiwan Semiconductor Manufacturing Co. posted better-than-projected quarterly earnings, fueled by increasing demand for high-end microchips from biggest customer Apple Inc. as well as up-and-coming Chinese smartphone makers.

The world’s largest contract chipmaker also forecast revenue slightly below analysts’ estimates for the current quarter. Chairman Morris Chang, addressing investors after the earnings release, voiced support for U.S. President-elect Donald Trump’s effort to create American jobs, saying TSMC had done its share over past decades to support U.S. employment by providing chip-making to that country’s firms.

TSMC, which builds the processors for Apple and Qualcomm Inc. that end up in smartphones, has grown its share of the iPhone business and benefited from growing demand from Chinese companies such as Oppo and Xiaomi Corp. Resilient demand for premium devices and new applications within areas such as artificial intelligence, datacenters and high-performance computing boosted the company’s business in 2016.

“TSMC actually created hundreds of thousands of U.S. jobs in the past 20 or 30 years,” said Chang, who began his career in the U.S. TSMC will continue to work with so-called fabless companies, he said, referring to the designers and owners of microchip technology like Apple or Qualcomm.

The Taiwanese company reported a record net income of NT$100.2 billion ($3.15 billion) in the three months ended December, surpassing the NT$96.2 billion average of analysts’ estimates compiled by Bloomberg. It previously reported a bigger-than-expected 29 percent jump in revenue to NT$262.2 billion. But it forecast sales of NT$236 billion ($7.4 billion) to NT$239 billion this quarter, lagging the NT$240.9 billion that analysts anticipated.

Chang told investors he foresees revenue growth for TSMC of 5 to 10 percent in 2017 in dollar terms. Global smartphone shipments could rise 6 percent this year to about 1.5 billion units, bouncing back from last year’s near-flat performance but lagging by far the 24 percent growth of 2014, according to research firm Canalys. In that environment, high-end component makers will be better positioned in 2017.

“The smartphone and PC market continues to see small growth and companies find it harder to differentiate,” said Nicole Peng, an analyst at Canalys.

TSMC’s shares climbed 1.4 percent Thursday, before results were released. They rose 27 percent in 2016, peaking in October just after the iPhone 7 went on sale.

The Taiwanese chip giant has been able to count on demand for Apple’s latest iPhone to fuel sales of the A10 processor it makes, helping it weather a slowdown in the global smartphone market. The advent of a 10th-anniversary edition of the device this year could again galvanize the business.

TSMC has also been spending to move toward 10-nanometer chipmaking, a smaller chip size that affords handset makers more room to add hardware features. Capital spending last year came to $10.2 billion. That move up the technology chain has been key to attracting higher-margin business.

IPhone-related sales will near 30 percent of TSMC’s overall revenue, Laura Chen, an analyst with BNP Paribas, wrote on Jan. 5. Other analysts have warned that its increasing reliance on one company may render TSMC vulnerable to swings in iPhone demand.

Chinese customers are another fast-growing slice of the pie. TSMC is building a 12-inch wafer manufacturing facility in the eastern Chinese city of Nanjing to better serve local customers.

But a rapid build-up in inventory may hurt demand up and down the supply chain in subsequent months, warns Ken Hui, an analyst at Huatai Securities Co. Aggressive Chinese brands had ramped up production in past months with an eye to dominating the key shopping season before the Lunar New Year, which in 2017 falls earlier than usual in January.

TSMC’s gross margin came to 52.3 percent in the quarter, beating projections for 51.4 percent. In the first quarter, margin is projected to rise to as much as 53.5 percent.

“We expect TSMC’s solid technology migration and strong execution to bolster its earnings growth,” Chen wrote.

By: DocMemory
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