A Wall Street Transcript Interview with Mark Li, Senior Research Analyst Covering the Asian Semiconductor Sector for Sanford C. Bernstein & Co., LLC: Chinese Fabless Industry to Outgrow Semiconductor Sector by Significant Margin

Wall Street Transcript

67 WALL STREET, New York - May 29, 2014 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Mobile Device Consumer Demand - Enterprise Data Storage Demand - Energy Efficiency, Cloud Computing and Telecommunications - Improvement from Cyclical Bottom - Semiconductor Capital Equipment Spending - Data Growth Trends - Semiconductor Revenues and Demand - Chinese Fabless Industry Growth

Companies include: Apple Inc. (AAPL), Taiwan Semiconductor Manufactu (TSM), Semiconductor Manufacturing In (SMI), United Microelectronics Corpor (UMC), International Business Machine (IBM), Advanced Semiconductor Enginee (ASX) and many others.

In the following excerpt from the Semiconductors Report, an expert analyst from Sanford Bernstein discusses the outlook for the sector for investors:

TWST: What do you think will be the implications, ramifications of Apple's switch to TSMC, both for TSMC as well as for Samsung and MediaTek?

Mr. Li: Obviously, it will be good for TSMC (TSM) and bad for Samsung (005930.KS). It's actually neutral to MediaTek (2454.TW), because they are competing in different spaces. Apple (AAPL) is in the high-end smartphone segment, and MediaTek's customers are mostly low-end handset makers.

In terms of revenue impact for TSMC, this year Apple indeed will be the biggest contributor in their topline growth, potentially accounting for a high-single-digit increase in revenue for TSMC this year. I think TSMC will be the sole supplier of Apple's next-generation chip that will be used in the new phone Apple is going to launch in probably the Q3 or Q4 time frame. The production now is already underway, but the chip will not be available probably until late Q2 or early Q3. The production ramp will be pretty steep for TSMC, so therefore we will see a steep increase in TSMC's revenue from Q2 to Q3. And the production for AAPL's business is going to sustain into the first part of next year, 2015.

As for Samsung, it definitely is negative. They are going to lose their biggest customer, and therefore they are not investing much for 20-nanometers, because there's not enough volume to justify the investment with Apple's departure. There will still be limited investment for their internal chips, but I don't think there will meaningful investment to cater to the demand of external customers. I think for MediaTek the impact will be neutral because Apple is in the high end, and MediaTek and their customer are in the low-end smartphone segment.

TWST: Last time we talked, which was in September, we discussed your expectation that the Chinese fabless industry will outgrow the overall semiconductor sector. How is that thesis playing out at this point?

Mr. Li:;That is still true. I even feel that even more strongly right now. I went to China with a small group of investors a few weeks ago to visit the semiconductor supply chain there. We visited nearly 20 companies in a week, and I have to say I am very impressed. I can feel the momentum...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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