Taiwan-based Vanguard International Semiconductor (VIS) has reported first-quarter 2024 results that were somewhat better than expected. While facing market pricing competition from China, the 8-inch pure-play foundry has acquired shifted orders.
VIS reported revenue slipped around 0.4% sequentially to NT$9.63 billion (US$295.5 million) in the first quarter when gross margin grew 0.99% to 24.02%. The company generated operating profits of NT$1.23 billion during the quarter, up 31.4% quarter-on-quarter.
Falling non-operating income led to a 46.7% sequential decline in net profits for the first quarter of 2024, totaling NT$1.27 billion. The quarterly earnings per share (EPS) were NT$0.78. VIS indicated that first-quarter results were slightly better than the guidance provided in early February.
2Q24 outlook
Anticipating the second quarter, John Wei, president of VIS, indicated that semiconductor demand has gradually recovered since the end of the off-season.
The currency rate assumes a conversion rate of US$1 to NT$32. VIS anticipates a 17-19% sequential growth in wafer shipments in the second quarter, with a 2-4% fall in ASPs. Gross margins are expected to be 25-27%. The entire order visibility is projected to be between two and three months.
The first quarter sales decline can be attributed to several factors, according to Wei. Firstly, semiconductor demand entered its off-season in early 2024 after the holiday promotion that concluded in 2023. Secondly, the supply chain continued to make inventory adjustments, and thirdly, customers maintained a cautious and conservative ordering approach. VIS experienced a decline of around 4% in wafer shipments during the first quarter of 2024.
Despite competitive pressure, VIS benefited from product mix optimization, with ASP being relatively stable and a gross profit margin of 24%, which was somewhat higher than expected at the beginning of the year. This was mostly due to the recognition of one-time long-term contract revenue, which offset some of the negative effects of exchange rates and sales prices, Wei noted.
Wei also disclosed that most VIS facilities returned to regular output within four days of the April 3 earthquake, while Fab 2 resumed within a week. In terms of losses, the earthquake resulted in the replacement of yellow lights, furnace tubes, and other production equipment parts, as well as the scrapping of production line wafer fragments.
After accounting for insurance claims, VIS' second-quarter gross margin is likely to be lowered by about 1.5%, Wei said. In addition, the increase in electricity rates after April will likely reduce VIS' gross margin by another 0.8%, Wei continued.
PMIC and large-size DDI demand picking up
Leuh Fang, chairman of VIS, stated that semiconductor demand has gradually returned after the first-quarter off-season. Only a few end markets, such as automotive and industrial, will continue to adjust inventory in the first half of this year. Inventory adjustments for consumer electronics devices are expected to come to an end, and demand will steadily increase in the second half of the year, according to Fang.
There has been a resurgence in demand for PMIC and large-size Display Driver ICs (DDI), Fang indicated. The Olympic Games will boost the market for TVs, which will benefit VIS' sales resulting from orders for large-scale DDIs in the third quarter. Sales from PMIC orders will also increase significantly.
Due to the increasing revenue share of these two product categories, VIS anticipates a significant surge in wafer shipments for the second quarter compared to the first quarter.
Shifted orders from China
In response to China's large-scale deployment of mature process manufacturing capacity, such as Nexchip Semiconductor's statement that it would not rule out more price cuts, which could put VIS operations under pressure, Fang claimed that the company intends to stay out of a price-cutting war.
China's price-cutting competition is fierce, owing mostly to a decline in China's and the global economy's and end-consumer demand, as well as rivalry between the US and China, China's over-construction of production capacity, and rapid expansion, resulting in excess supply. However, Fang believes that VIS perceives greater potential under these circumstances.
Customers are skeptical of the excessive expansion of production capacity in China's wafer foundry industry, Fang noted. Simultaneously, multinational firms are gradually moving their focus away from Chinese production. This creates an advantageous opportunity for VIS, Fang continued.
The relocated orders from China will serve as a spur for VIS to boost its revenue in 2024, according to Fang. The positive contribution will be greater in 2025, with a strong emphasis on orders for PMIC products.
Capacity planning
In response to high customer demand for Power Management ICs (PMIC), VIS's full-year production capacity in 2024 will be around 3.387 million wafers, up slightly from the target of 3.381 million units set at the start of this year, according to Wei.
At Fab 5, the production capacity for the second quarter has been increased by an additional 4,000 wafers, resulting in a total monthly production capacity of about 279,000 wafers, Wei indicated. The quarterly capacity utilization rate is expected to grow by 10% over the previous quarter, reaching around 60%.
Wei stated that Fab 5 will receive 60% of the planned NT$3.8 billion in capex for 2024. The remaining 40% will go to equipment maintenance and optimization.
GaN deployment
VIS has disclosed its deployment in Gallium Nitride (GaN) semiconductors with its two process offerings: GaN-on-QST and GaN-on-Si.
The first generation of its GaN-on-QST technology is now in volume production for battery chargers. The second generation, with significantly enhanced performance, is projected to pass customer verification in the third quarter and be ready for risk production in the fourth.
Regarding GaN-on-Si, the process is now in risk production and will be ready for volume production in the third quarter. VIS is more optimistic about the volume of customer orders and output from its GaN-on-Si technology.
In related news, VIS will hold a shareholders meeting on June 14 to re-elect the board of directors. There was a notable absence of a legal representative from parent company TSMC at the election. The action's primary objective, according to Fang, is to improve corporate governance and management accountability. TSMC has no plans to divest its shares, and the bilateral relationship between the two entities remains unaltered.
