By Michael Gold
TAIPEI (Reuters) - Apple Inc chip supplier TSMC reported record net profit on Thursday and said the proliferation of low-priced, chip-hungry smartphones in China could see the company expand production in the world's biggest handset market.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC), whose chips company watchers say power Apple's iPhones, would be following compatriot peer United Microelectronics Corp which last month said it would build more plants in the country.
"We are seriously considering the possibility of doing 28-nanometre production in China," TSMC Chairman Morris Chang said at an earnings conference, referring to current-generation technology it currently employs in Taiwan.
TSMC saw earnings jump last year due primarily to orders from Apple, company watchers say. But the chipmaker also benefited from increasingly sophisticated yet affordable smartphones demanding more chips for features from fingerprint sensors to fourth-generation (4G) LTE receivers.
Expanding in China where low-priced phones dominate could give the world's No.1 contract chip maker a leg up in a market which favours home-grown goods.
"[Our Chinese clients] would prefer to work with us in China," Chang said.
TSMC said it holds the biggest share of China's chip market, though Chinese clients' contribution to its bottom line is "very small."
"But our client base in China is growing rapidly," said Chief Financial Officer Lora Ho.
APPLE BUSINESS
TSMC expects smartphones to continue driving growth for the foreseeable future, though analysts are divided on whether it will produce chips for the next wave of premium handsets from Apple. TSMC would not comment on individual clients.
Samsung Electronics Co Ltd, reportedly TSMC's main competitor for Apple custom, previously reported increased demand for chips made with 14 nanometre technology, the likes of which market watchers say could run next-generation iPhones.
"There will be 2 billion phones on the market by 2019, and the silicon content in the average phone is increasing," Chang said.
The popularity of chip-heavy smartphones helped TSMC report record net profit of T$263.9 billion (5.48 billion pounds) last year, up 40 percent from 2013, on T$762.8 billion in revenue, up 28 percent.
For January-March, TSMC estimates revenue of T$221 billion to T$224 billion. That would compare with an October-December record of T$222.5 billion, which marginally beat analyst estimates and was nearly double a year earlier.
The chipmaker expects an operating profit margin of 38.5 percent to 40.5 percent in the first quarter, from 39.6 percent in the fourth.
Revenue will grow faster than the overall chip foundry industry in 2015 by "several percentage points," Chief Executive Mark Liu said without elaborating.
TSMC shares closed up 1.2 percent before the earnings, versus the benchmark TAIEX index's 0.2 percent fall.
