TSM Taiwan Semiconductor Manufacturing Co Ltd

By Eva Dou 

TAIPEI--Companies that make parts for Apple Inc. are warning of lower first-half revenues, in a sign of slowing sales of the latest iPhones.

Taiwan Semiconductor Manufacturing Co., which manufactures the chips that run iPhones and other popular electronic devices, forecast Thursday its first-quarter revenue would decline by as much as 10.8% from the previous year, citing demand weakness for high-end smartphones.

Apple components contribute 20% of sales for TSMC, the world's largest contract chip maker, according to a Credit Suisse report.

Largan Precision Co., which supplies iPhone camera modules, said it expected "quite a weak" first quarter, while Catcher Technology Co., a maker of iPhone metal casings, said its revenue for the first half would be flat from a year earlier.

Samsung Electronics Co., which also supplies the computing brains in smartphones, known as processors, earlier this month said it expects competition will intensify this year for all of Samsung's main products including memory chips. In addition to supplying components to Apple, Samsung competes with the Cupertino, Calif.-based company in selling smartphones.

The first half of the year is traditionally a slow season for Apple's supply chain and the broader gadget industry. But this year's slowdown is likely to be more pronounced, with sluggish sales of the iPhone 6S and iPhone 6 Plus launched last fall, compared with the booming popularity of the iPhone 6 in 2014, said people familiar with iPhone production.

Apple has cut its order forecasts to iPhone suppliers in the past few months, The Wall Street Journal reported last week.

Such concerns have pushed Apple's stock price below $100 for the first time in 15 months and hit stocks of iPhone suppliers.

"We see a reduction in high-end smartphone demand," said Mark Liu, one of TSMC's co-chief executives, at an investor conference Thursday, without mentioning specific customers. He said China and other emerging markets, however, were showing "signs of recovery" and that TSMC expected to return to growth after the first quarter.

TSMC forecast revenue of between 198 billion New Taiwan dollars (US$5.93 billion) and NT$201 billion in the first quarter, down 9.5% to 10.8% from a year earlier and 1.2% to 2.7% lower from the fourth quarter. Still, the company said it expected to boost capital expenditure this year by 10% to 20% to between $9 billion and $10 billion.

Mr. Liu said TSMC expected the global smartphone market to hold up better than other electronics segments in 2016. TSMC forecast 8% growth in global smartphone-unit shipments this year, versus 3% and 7% declines for personal computers and tablets, respectively.

Suppliers are giving brighter outlooks for the full year, however, with Apple expected to launch its next-generation iPhone that should have more new features than the iPhone 6S, based on its pattern of a major iPhone upgrade every two years.

A spokesman for Pegatron Corp., which makes some iPhones, said his company expected its smartphone sales to grow for the full year. He declined to comment on the outlook for the first half.

C.C. Wei, another TSMC co-chief executive, said the company planned to begin production of chips in the second quarter, using its new "InFO" technology that allows for thinner chipsets--and therefore slimmer gadgets.

This technology won't be widely adopted by TSMC's customers in 2016, but there will be "a few, very large-volume customers," he said. Bernstein Research analyst Mark Li wrote in a report in October that Apple will be TSMC's only meaningful customer for InFO this year, with the technology allowing better performance and a thinner chipset for the next-generation iPhone.

A spokeswoman for Apple referred to comments made by Apple Chief Executive Tim Cook on an earnings call in 2013 during which he said it was difficult to accurately extrapolate business outlooks from individual data points in the supply chain.

"There's just an inordinately long list of things that would make any single data point not a great proxy for what's going on," he said at the time.

TSMC said Thursday its fourth-quarter net profit fell 8.9% to NT$72.84 billion from NT$79.99 billion a year earlier. The result marked a slowdown from the previous year's rapid growth when TSMC began supplying processors for Apple's iPhones and tablets. In the 2014 fourth quarter, its net profit rose 79%, hitting a new quarterly record.

TSMC's revenue fell 8.5% to NT$203.52 billion in the three months ended Dec. 31 from NT$222.52 billion a year earlier.

Write to Eva Dou at eva.dou@wsj.com

(END) Dow Jones Newswires

January 14, 2016 07:32 ET (12:32 GMT)

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