Order inflow from major clients, especially HiSilicon, Mediatek and Qualcomm, looks set to remain strong thanks to increasing smartphone demand in China. For mainstream smartphone system on chip (SoC), 28nm remains the key technology node for most chipset makers due to better cost and performance. In baseband modems there is increasing technology migration to 28nm for WiFi, digital TV and STB solutions. We believe TSMC’s 28nm utilisation rate will be fully loaded in 2Q/3Q, thus supporting the company’s sales and margins.
Thanks to TSMC’s recent share gain in Apple’s A10 AP on the back of its InFO package technology and better performance, we expect Apple’s direct sales contribution to increase to 15% in 2H16, from 7-8% in 2015. Samsung is working on FoWLP packaging and aims to be part of the supply chain for Apple’s next generation AP business.
However, due to the difficult PLP yield rate control, we don’t think it will threaten TSMC’s position in the next two years.
As the industry moves to 10nm/7nm, we believe TSMC should face less competitive threat, thanks to its solid technology leadership and strong execution. We expect TSMC to sustain this advantage long term. While the market has been watching TSMC’s advanced node progress, its mature 28nm business has been a stable cash cow for the company and should provide continued support even in the slow season. We maintain our buy rating with a new TP of TWD190.