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TSMC estimates loss of over NT$6 billion from production mishap

2019/02/23 18:28:43

Taipei, Feb. 23 (CNA) Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, said Friday it incurred a loss of more than NT$6 billion (US$198 million) from a production disruption caused by substandard chemicals.

Based on a preliminary estimate, TSMC said the loss was about NT$6.1 billion and would be booked in the first quarter.

The incident was the second major operating incident for TSMC in a matter of months. It suffered NT$2.6 billion in losses after its computer system was infected with a virus in August 2018.

The production problem, which was identified on Jan. 19 and later found to be caused by problematic raw materials, resulted in low yields on wafers produced with the 12 nanometer and 16nm processes at TSMC's Fab 14B, a 12-inch wafer foundry in Tainan.

An investigation found the problem to be caused by a batch of substandard photoresist chemicals from "a well-performing" supplier with which the company has worked for many years, TSMC said.

Foreign brokerages said the Fab 14B incident affected shipments to major TSMC clients, such as U.S.-based integrated circuit designer Nvidia Corp., Chinese IC designer HiSilicon Technologies Co. and Taiwan's MediaTek Inc.

In a statement released on Feb. 15, TSMC said the impact of the substandard chemicals was larger than expected and that it would reduce its first quarter sales by US$550 million and drag down its earnings per share by NT$0.42 in the quarter.

Despite the incident, a European brokerage maintained its "outperform" rating and a target price of NT$250 (US$8.12) on TSMC shares, saying the chipmaker is expected to record deferred sales in the second quarter from the first quarter due to the production problem.

In addition, the brokerage said TSMC's proposal to issue NT$10 in cash dividend per share this year in two stages was attractive to investors.

But a U.S. brokerage said TSMC is still faced with continued inventory adjustments and weakening demand for smartphones, and it suggested that investors remain cautious before market conditions improve.

The American brokerage maintained a "neutral" rating and a target price of NT$196 on TSMC shares.

On Friday, TSMC shares closed unchanged at NT$236.50 on the Taiwan Stock Exchange.

(By Chang Chien-chung, Jeffrey Wu and Frances Huang)