Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
Q4 2012 Earnings Call
January 17, 2013 1:00 AM ET
Executives
Elizabeth Sun – Director, Corporate Communications
Lora Ho – SVP, CFO and Spokesperson
Morris Chang – Chairman and CEO
Analysts
Michael Chou – Deutsche Bank
Roland Shu – Citi
Dan Heyler – Merrill Lynch
Randy Abrams – Credit Suisse
Donald Lu – Goldman Sachs
Bill Lu – Morgan Stanley
Andrew Lu – Barclays
Mehdi Hosseini – SIG
Rick Hsu – JP Morgan
Steve Pelayo – HSBC
Brett Simpson – Arete Research
Presentation
Elizabeth Sun
(Interpreted) Welcome to TSMC’s Fourth Quarter 2012 Earnings Conference and Conference Call. This is Elizabeth Sun, TSMC’s Director of Corporate Communications and your host for today. The event is webcast live via TSMC’s Web site at www.tsmc.com. If you are joining us through the conference call, your dialing lines are in listen-only mode. As this conference is viewed by investors around the world, we will conduct this event in English only.
The format for today’s event will be as follows: first, TSMC’s Senior Vice President and CFO, Ms. Lora Ho, will summarize our operations in the fourth quarter and for the full year of 2012, followed by our guidance for the first quarter 2013. Afterwards, TSMC’s Chairman and CEO, Dr. Morris Chang, will provide his general remarks and a couple of key messages. Then we will open the floor to questions.
For those participants on this call, if you do not yet have a copy of the press release, you may download it from TSMC’s website at www.tsmc.com. Please download the summary slides in relation to today’s earnings conference presentation.
Before we begin, I would like to remind everybody that today’s discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the Safe Harbor notice that appears on our press release.
And now I would like to turn the podium to TSMC’s CFO, Ms. Lora Ho.
Lora Ho
Thank you, Elizabeth. Good afternoon, everyone. Thank you for your participation today. My presentation will start with financial highlights for the fourth quarter and a recap of 2012 financial performance, followed by the guidance for the first quarter.
In the fourth quarter, despite inventory correction in the IT supply chain, demand for our products was higher than we expected three months ago, resulting in above-guidance revenue and profit margins. On a sequential basis, our fourth-quarter revenue decreased 7% to TWD 131 billion. Gross margin was 47.2%, down 1.6 percentage points from the third quarter. This is mainly due to lower capacity utilization, while cost improvements and the favorable inventory evaluation adjustment offset some of the decline. Operating margin was 35.2%, down 2 percentage points from the third quarter. Operating expense as a percent of revenue increased 0.4 percentage points over a smaller revenue base.
Non-operating items were small losses of TWD 7 million in the fourth quarter as we recorded an impairment charge for certain invested companies. Overall, our fourth quarter EPS was TWD 1.61; ROE was 23.8%.
In terms of revenue by application, as I just mentioned, inventory correction in the IT supply chain has affected overall demand for TSMC’s wafer. However, demand for mobile computing devices remained firm, making communication the only growing segment in the fourth quarter. But our demand for computer, consumer and industrial-related products all declined by double digits. As a result, revenue contribution from communication-related applications further increased from 49% in the third quarter to 54% in the fourth quarter.
On a full-year basis, communication increased 23% and that would be turned at 50% of our wafer revenue. The major contributing segment includes application processors, base vent, CMOS image sensor and wireless LANs, reflecting the strong demand for mobile computing devices.
Another fast-growing application is industrial and standard which grew 42% year-over-year. The growth was mainly contributed by the increasing usage of Power IC data converter, touch controller and a flash controller within mobile devices. This also reflected our success in developing specialty technology businesses.
If we look at our revenue by technology, thanks to customers’ strong demand for TSMC’s 28-nanometer technology and the excellent execution by the operation team, revenue contribution from this node jumped from 13% in the prior quarter to 22% in the fourth quarter. We see 28-nanometer as a very successful node for TSMC, which already accounts for 12% of our full-year revenue in 2012. Looking forward, we remain confident 28 revenue contribution will exceed 30% for the whole year in 2013 and margin will be at corporate level starting from this quarter.
Taking a look at the balance sheet, on the asset side, cash and marketable securities ended the quarter at TWD 151 billion, slightly increased from last quarter. Long-term investment increased to TWD 66 billion, mainly due to the TWD 31.5 billion investment in ASML shares. This strategic investment will be recognized as available for sale in our balance sheet.
On the liability side, current liability increased TWD 23 billion, mainly due to increase in payables to contractors and equipment suppliers as well as increase in short-term loans for hedging purpose. Long-term debt increased by TWD 4.4 billion to TWD 82 billion as we issued more corporate bonds in the fourth quarter.
Our days of inventory increased by six days to 50 days, mainly due to higher work-in-process for 28-nanometer product in response to a strong market demand and an increase of raw material.
On the cash flow side, we generated TWD 85 billion from operations in the fourth quarter and invested TWD 60 billion in capital expenditure. Overall, our cash balance increased TWD 5 billion to TWD 143 billion at the end of the fourth quarter. Due to higher operating cash flow and the lower capital expenditure, free cash flow improved from negative TWD 2 billion in the third quarter to positive TWD 26 billion in the fourth quarter.
Read the rest of this transcript for free on seekingalpha.com
Copyright 2013 Seeking Alpha
