* Contract chip makers Q2 sales meet expectations
* Foundries may see high-end segment inventory correction in
* Demand for low-cost gadgets squeezes margins
By Clare Jim
TAIPEI, July 10 Taiwan's top foundries may need
to rein in expectations for the second half of the year as
high-end smartphone sales growth cools and chip buyers look to
ship more low-cost, low-margin gadgets to emerging markets like
The world's largest contract chip maker, Taiwan
Semiconductor Manufacturing Co Ltd, and its smaller
cross-town rival, United Microelectronics Corp, both
reported strong June sales on Wednesday, indicating
second-quarter business had lived up to high expectations.
But the second half of the year looks tougher.
Contract chip makers which have been riding the explosive
growth of mobile demand will have to depend more on mid- to
low-end phones which use cheaper semiconductors, rather than
high-end models like Apple Inc's iPhone, placing
greater pressure on margins.
Analysts warned that some chip buyers may start cutting back
orders and working through existing stockpiles of semiconductors
this quarter, which is traditionally a high season, slowing the
momentum seen in the beginning of the year even though demand
from China is expected to stay strong.
"Samsung's Galaxy S4 and HTC One were both selling worse
than expected so we may see an inventory correction in Q3.
Chipmakers are cautious about placing orders now," said Hong Yi
Chen, an analyst at Taipei-based IBTS Investment Consultation
Last Friday, both the Korean and Taiwanese smartphone
vendors posted second-quarter earnings that lagged forecasts,
deepening worries that the high-end smartphone market may have
TSMC Chairman Morris Chang said in April that the first and
second quarters were stronger than usual due to solid
mobile-related sales and surprisingly robust orders from China.
He was still confident last month, telling reporters he
expected record earnings per share this year and a better
second-half. Certain clients and markets like China were making
up for softness elsewhere in the industry, he added.
The company's clients include Qualcomm Inc, Texas
Instruments Inc and Nvidia Corp. In turn, these
firms sell chips to consumer electronics companies like South
Korea's Samsung Electronics Co Ltd and Taiwan's HTC
Corp as well as Apple.
"Individual vendors have some corrections - it's not
industry-wide," said KGI Securities analyst Michael Liu in
Taipei, adding that mid- to low-end markets remained healthy.
"The uptrend is still the same, just softer than previously
TSMC has enjoyed solid sales of chips made with 28-nanometre
process technology, which cram more computing power into smaller
micro-circuits. This is essential as consumers place greater
demands on their tablets and smartphones, such as the ability to
rapidly download videos and take higher-quality photographs.
But as competitors vie to catch up, TSMC is investing to
expedite the development of smaller, faster, more
energy-efficient 20-nanometre, and a new technology called
FinFET that may provide even better speed and performance.
TSMC is the top contract chipmaker with 50 percent of the
market, followed by Global Foundries with 12 percent and UMC
with 10 percent, according to U.S. IT research company Gartner.
Contract chipmakers manufacture chips for chip design companies.
Gartner said rising demand for mobile applications would
ensure that the foundries' revenue growth continued to outpace
the broader semiconductor industry.
Hong Yi Chen at IBTS said that while TSMC's sales in
the remainder of the year could fall short of high expectations,
UMC and the world's second-largest chip maker,
GlobalFoundries, could be more resilient as they refined their
technology and received more orders from clients keen to
"Second-tier foundries' results may not be necessarily worse
as they started from a low base. Their orders should jump next
year as soon as they secure the more advanced processes like
28nm technology, and as clients resort to second sources," Chen