U.S. brokerage cuts target price on TSMC shares amid COVID-19 concerns

TSMC might see a cut in orders, say analysts 

TSMC might see a cut in orders, say analysts  (CNA photo)

A U.S.-based brokerage has lowered its target price for shares in contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), citing the escalation of the COVID-19 pandemic worldwide, which could force clients in the global smartphone supply chain to cut orders.

In a research note, the brokerage said in addition to concerns over a possible cut in orders to TSMC, the global semiconductor industry is expected to suffer inventory adjustments in the second half of this year caused by the spread of the virus.

The American securities house said it has lowered its target price on TSMC shares, the most heavily weighted stock on the local market, from NT$335 to NT$325 (US$10.73), but left an "overweight" rating on the stock unchanged as the world's largest contract chipmaker is likely to recover quickly after the virus impact fades.

On Wednesday, TSMC fell 0.91 percent to close at NT$271.50 on the Taiwan Stock Exchange, where the benchmark weighted index ended down 0.46 percent at 9,663.63 points. The local equity market closed from Thursday for a long weekend to observe the Tomb Sweeping Festival.

Since the beginning of March, TSMC shares have shed 14.08 percent as the virus pandemic has sent ripples through the global financial markets.

With the virus spreading to developed countries in the West, such as the United States, the United Kingdom and France, the brokerage said, the global economy has been impacted, with demand falling.

Under such circumstances, the brokerage said, smartphone chip designers including Taiwan's MediaTek Inc. and U.S.'s Qualcomm Inc. as well as China's HiSilicon Technologies Co., which is a unit of Huawei Technologies Co., could cut their orders to TSMC, starting from the second quarter of this year.

Such a move would impact shipments of chips made using TSMC's advanced 7 nanometer process, the latest technology to start mass production, the brokerage said.

Also due to the spread of the virus, Apple Inc. could lower its inventory of iPhones in the second half of this year, which may result in a fall in demand for TSMC's more sophisticated 5nm process, which is scheduled to start commercial production by the end of the first half of this year. TSMC is believed to serve as the sole processor provider for iPhone production.

The brokerage said TSMC's sales for the second half of this year could fall 4 percent from the first half.

Despite the cut in orders by smartphone brands or their suppliers, the brokerage said, TSMC is expected to benefit from a rise in its 7nm process market share globally and solid demand for 5G applications this year, but it cut its forecast for TSMC's sales growth in 2020 from 17 percent to 9 percent.

In February, TSMC posted NT$93.39 billion in consolidated sales, down 9.9 percent from a month earlier but up 53.4 percent from a year earlier, while the chipmaker has left its first quarter sales guidance ranging from US$10.2-US$10.3 billion unchanged, down about 1.3 percent from the previous quarter on slow season effects.

TSMC is scheduled to release its March sales report next week.

The chipmaker has scheduled an online investor conference for April 16, marking the first virtual investor conference in the company's history amid the COVID-19 scare. The company is expected to detail the results in the first quarter and give guidance for the second quarter at the meeting. (By Jeffrey Wu, Chung Jung-feng and Frances Huang)