Pure-play foundry Taiwan Semiconductor Manufacturing Company (TSMC) has forecast revenues will fall up to 10% sequentially in the first quarter of 2017, and expressed caution over the prospects for the second quarter.

TSMC expects to post revenues of between NT$236 billion (US$7.5 billion) and NT$239 billion in the first quarter of 2017, down 8.8-10% from the prior quarter when the company generated a record NT$262.23 billion.

"Due to stronger demand for TSMC's 16-nanometer technology and a more favorable exchange rate than our original forecast, fourth quarter revenue surpassed the high-end of our guidance given three months ago," said Lora Ho, SVP and CFO of TSMC. "Moving into first quarter 2017, we forecast the demand is weaker than the prior quarter due to mobile product seasonality and slightly above seasonal supply chain inventory at the end of 2016."

TSMC's revenue guidance for first-quarter 2017 also came below market watchers' general outlook of 5-8% sequential decreases.

DOI at TSMC's fabless IC customers at the end of first-quarter 2017 will be above usual seasonal levels, the foundry indicated at an January 12 investors meeting. With customers engaged in inventory adjustments, TSMC is likely to post another sequential revenue drop in the second quarter, the foundry said.

Industry sources attributed TSMC's pessimistic revenue outlook for the first half of 2017 to a slowdown in 16nm chip demand, as well as delayed shipments of 10nm chips to a major customer.

TSMC has already seen Apple cut back on wafer starts for its 16nm A10 SoC chips, the sources indicated. In addition, the foundry is unlikely to scale up substantially its output of 10nm chips until the third quarter of 2017, due mainly to MediaTek's revised schedule of the Helio X30 SoC launch, the sources said.

TSMC was previously requested by MediaTek to start fulfilling orders for the Helio X30-series chips in the first quarter of 2017, but the schedule has postponed to the end of the second quarter, the sources noted. Nevertheless, TSMC's 10nm technology as a proportion of company revenues is set to exceed 10% in the third quarter of 2017, the sources said.

Despite being conservative in its outlook for the first half of 2017, TSMC expects to enjoy another year of record revenues and profits. Revenues are forecast to increase 5-10% from 2016 when the foundry generated a record NT$947.94 billion, company chairman Morris Chang said at the January 12 investors meeting.

Chang also claimed TSMC will prevail in the 10nm and 7nm process segments with a higher market share than that in the 16nm process segment.

In addition, TSMC's capex for 2017 will be around US$10 billion compared with US$10.19 billion in 2016, according to company CFO Ho.