Taiwan Semiconductor Could Blow Street Estimates Away

Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE: TSM) appears poised to significantly exceed Street expectations in the back half of 2016, BlueFin's Paul Peterson said in a report. He added that while 28nm was near capacity, 16nm was set to ramp to volume.

Bigger Die Size To Benefit

The Street’s estimates for Taiwan Semiconductor’s growth are mostly based on the growth of Apple Inc. (NASDAQ: AAPL), which in turn is driven by its iPhone 7 build plans. The Street estimates do not reflect “the significantly larger die size of the A10 processor versus the prior A9 chip,” analyst Paul Peterson pointed out.

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Since Apple was unable to capitalize on a process node shrink with the iPhone 7, any increase in processing performance from the A9 to the A10 would lead to a larger die size. Peterson commented further that a bigger die size translates to the need for more wafers; and Taiwan Semiconductor receives revenue by the wafer.

16nm Production Ramping

Several suppliers are now ramping 16nm production. These include HiSilicon, Advanced Micro Devices, Inc. (NASDAQ: AMD), NVIDIA Corporation (NASDAQ: NVDA), Mediatek, Xilinx, Inc. (NASDAQ: XLNX) and Spreadtrum Communications, Inc (ADR) (NASDAQ: SPRD), Peterson noted.

The 16nm node is likely to contribute more than 25 percent to Taiwan Semiconductor's total revenues in 2H16. The company may guide to 18 percent revenue growth for Q3 and exceed $29B in 2016 versus the Street estimate of $28.1B. The analyst expects the beat to be driven mostly by the strength of 16nm revenue growth.