Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電), the largest maker of chips for other companies, said third-quarter profit will be better than it estimated at the end of the second quarter.
Net income from operations in the three months to September will rise fivefold from the previous quarter to about NT$1.42 billion, the company said in a faxed statement.
Moreover, TSMC said it expects to meet a forecast for profit to increase in the fourth quarter as mobile phone companies that use its chips add more features to cope with a flagging market.
Although the company is "cautious" following the terrorist attacks in the US, more customers are ordering semiconductors using its most advanced technology, TSMC President Rick Tsai (
Companies such as Ericsson AB, the largest maker of wireless networks, are enhancing their products to beat rivals. That benefits TSMC, which offers a wider range of technology than United Microelectronics Corp (聯電) and Chartered Semiconductor Manufacturing Ltd (特許), its closest rivals.
"TSMC's got a broader technology portfolio," said Ben Akrigg, who helps manage about US$2.5 billion at Morley Fund Management Singapore Ltd. and owns shares in TSMC and UMC. "UMC's communications-chip customers have stopped ordering temporarily and Chartered is losing market share." TSMC is receiving more orders for communications-chips that are more efficient and fetch better prices than ones made using standard technology.
"Higher technology helps customers differentiate themselves in the communications sector," Tsai said. "We are gaining market share on our competitors." TSMC's advanced manufacturing process and expertise in making chips for wireless devices gives it a lead over UMC and Chartered.
TSMC uses the so-called 0.13-micron process, which produces chips that are more than twice as small as ones using the standard 0.25- micron process.
TSMC, UMC and Chartered will together probably glean 14 percent of the US$117 billion global chip market this year, which is shrinking 34 percent from last year, said researcher firm IC Insights. The companies are focusing on communications chips as worldwide sales of PC chips fall a quarter to US$38 billion this year from last year.
TSMC hopes to extend its share in a market that researchers say will stagnate in the fourth quarter.
"While there has been a surge in cellular phone sales in the US since the attack, we believe short-term sales increases in selected electronic systems will not be enough to offset the overall economic weakness expected in the fourth quarter," IC Insights said in a report this week.
TSMC is taking market share away from rivals. While UMC offers similar knowhow to make chips smaller, cheaper and more efficient, the company said communications-chip sales fell to 34 percent of revenue in the second quarter from 48 percent in the first.
While UMC's customers such as Infineon AG of Germany cut orders to keep their own plants running amid slowing demand, TSMC was able to maintain sales as most of its customers do not own factories, some investors said.
Chartered, the third-largest contract chipmaker, which said in July it expects to benefit when demand for communications chips recovers, has yet to implement 0.13-micron technology.
Such advanced technology is generally used to make prototypes of new products, giving TSMC access to a wide variety of customers, some investors said.
"TSMC has been very successful in the wireless sector," said Albert King, who helps manage US$2.5 billion for China Securities Investment Trust Corp (
UMC and Chartered said they expect to idle more of their production capacity this quarter, while TSMC said business has stabilized and will improve.
TSMC said it's using about 40 percent of its capacity, better than its forecast at the end of the second quarter. Chartered said it expects to use about a fifth of its equipment in this quarter, and UMC said it will use about 30 percent.
Many of TSMC's largest customers that design chips for personal computers include Intel, Nvidia Corp and ATI Technologies Inc. Still, demand for PCs this year will probably lag expectations, according to some investors.
"The PC segment as a driving force is not as strong as before," said Michael Yeh, who helps manage about US$9 million in equities for United Securities Investment Taiwan (
"The force driving the chip foundry industry in the future is communications chips." Global chip sales in the fourth quarter may lag expectations following the attacks in the US, according to IC Insights.
"This will not be a good year for the PC chip business," Tsai said.
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