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AMD’s woes at GF is good for TSMC
Event
After US market close yesterday, AMD (AMD US, US$6.15, N, TP: US$8,
Shawn Webster) warned its 3Q11 sales will miss its original guidance of 8–
12% QoQ growth. The company now expects 4–6% QoQ growth for the
current quarter (vs the street’s 9% forecast) citing limited supply from its
foundry partner GlobalFoundries due to a manufacturing yield rate issue with
its 32nm technology. AMD stock was down 10% at market close.
Impact
AMD to miss 3Q guidance. Management explained that the company has
encountered manufacturing problems at the Dresden fab of its foundry partner
GlobalFoundries (GF). The lower yield rate has resulted in fewer of its “Llano”
Fusion APU chips available, which is hurting revenue. The company now
expects revenue in 3Q to rise 4–6% sequentially, or US$1.63–1.67bn. This is
well below its previous forecast of an 8–12% QoQ increase or sales of
US$1.7–1.76bn.
Gross margin also affected. 3Q11 GM is now estimated to be 44–45%,
which is 2–3ppt lower than its previous forecast of 47%. This is a result of the
limited supply of its “Llano” Fusion APU, which commands higher gross
margins.
45nm supply also affected. Due to problems related to the design and
manufacturing common tools across both technology nodes, 45nm supply is
also affected.
What is bad for GF is good for TSMC (2330 TT, NT$70.3, OP, TP: NT$83).
As we highlighted previously, while GF is aggressively expanding capacity,
execution remains the key to its potential success given its poor track record
with Chartered Semi and AMD. This mis-execution provides further evidence
that GF continues to struggle with its 32nm SOI+HKMG technology. The
amendment to its pricing agreement with AMD in April this year, due to a yield
rate issue, resulted in a move to good die based pricing from wafer-based
pricing. Therefore we believe GF’s capacity ramp-up in 2012 would not
threaten TSMC’s market dominance as GF’s new capacity is unlikely to be
effective in 2012 and its execution track record would discourage broad
adoption by customers even with attractive pricing.
TSMC’s 28nm is on schedule. General customer demand for 28nm at TSMC
next year has been positive. In fact, TSMC is unable to meet one key mobile
customer’s demand for 28nm next year due to capacity constraints, suggesting
that TSMC’s 28nm capacity loading next year would be very tight. Importantly,
28nm technology should differentiate TSMC from the competition next year as it
is coming out one-year ahead of its peers. The company should also benefit
considerably as the industry shifts and adopts ARM-based CPUs for mobilecomputing
devices in 2012 and beyond with the launch of Microsoft’s Windows
8. This, in our view, should help TSMC become a dominant foundry partner for
ARM-based players in the long run. TSMC remains our top pick in the semi
space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AMD’s woes at GF is good for TSMC
Event
After US market close yesterday, AMD (AMD US, US$6.15, N, TP: US$8,
Shawn Webster) warned its 3Q11 sales will miss its original guidance of 8–
12% QoQ growth. The company now expects 4–6% QoQ growth for the
current quarter (vs the street’s 9% forecast) citing limited supply from its
foundry partner GlobalFoundries due to a manufacturing yield rate issue with
its 32nm technology. AMD stock was down 10% at market close.
Impact
AMD to miss 3Q guidance. Management explained that the company has
encountered manufacturing problems at the Dresden fab of its foundry partner
GlobalFoundries (GF). The lower yield rate has resulted in fewer of its “Llano”
Fusion APU chips available, which is hurting revenue. The company now
expects revenue in 3Q to rise 4–6% sequentially, or US$1.63–1.67bn. This is
well below its previous forecast of an 8–12% QoQ increase or sales of
US$1.7–1.76bn.
Gross margin also affected. 3Q11 GM is now estimated to be 44–45%,
which is 2–3ppt lower than its previous forecast of 47%. This is a result of the
limited supply of its “Llano” Fusion APU, which commands higher gross
margins.
45nm supply also affected. Due to problems related to the design and
manufacturing common tools across both technology nodes, 45nm supply is
also affected.
What is bad for GF is good for TSMC (2330 TT, NT$70.3, OP, TP: NT$83).
As we highlighted previously, while GF is aggressively expanding capacity,
execution remains the key to its potential success given its poor track record
with Chartered Semi and AMD. This mis-execution provides further evidence
that GF continues to struggle with its 32nm SOI+HKMG technology. The
amendment to its pricing agreement with AMD in April this year, due to a yield
rate issue, resulted in a move to good die based pricing from wafer-based
pricing. Therefore we believe GF’s capacity ramp-up in 2012 would not
threaten TSMC’s market dominance as GF’s new capacity is unlikely to be
effective in 2012 and its execution track record would discourage broad
adoption by customers even with attractive pricing.
TSMC’s 28nm is on schedule. General customer demand for 28nm at TSMC
next year has been positive. In fact, TSMC is unable to meet one key mobile
customer’s demand for 28nm next year due to capacity constraints, suggesting
that TSMC’s 28nm capacity loading next year would be very tight. Importantly,
28nm technology should differentiate TSMC from the competition next year as it
is coming out one-year ahead of its peers. The company should also benefit
considerably as the industry shifts and adopts ARM-based CPUs for mobilecomputing
devices in 2012 and beyond with the launch of Microsoft’s Windows
8. This, in our view, should help TSMC become a dominant foundry partner for
ARM-based players in the long run. TSMC remains our top pick in the semi
space.
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