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TSMC's profit growth may decline

Taiwan Semiconductor Manu-facturing Co (TSMC, 台積電) will probably say its profit quadrupled in the third quarter. The chipmaker may forecast profit will slide in the fourth quarter as a recovery in demand stalls.

"The industry is still depleting inventory," said Dan Heyler, an analyst with Merrill Lynch & Co who rates the shares "neutral."

"The main reason for deterioration in the fourth quarter is an overbuild of electronic products that started in the second quarter," he said.

Consumers are shunning personal computers with faster chips that they don't need for most tasks, replacing their PCs less frequently. Intel Corp, the world's largest chipmaker, this month said fourth-quarter sales will fall.

TSMC, the world's largest supplier of made-to-order chips, and its rivals may also expect slower demand during the holiday shopping season, usually the best quarter for sales.

TSMC's profit probably surged in the third quarter compared with a year earlier, the worst in chip-industry history, analysts said. Net income was probably NT$6.2 billion (US$177.5 million), based on the average of seven estimates from analysts polled by Bloomberg. The company, which reports earnings Tuesday, posted net income of NT$1.2 billion a year ago.

Third-quarter sales, announced earlier, rose to NT$39.8 billion from NT$26.9 billion a year ago.

After a rebound in demand stalled and chip prices fell in the second half, TSMC cut its 2002 budget for plant equipment to less than US$2 billion from about US$2.5 billion. Slower sales at the company's overseas units probably crimped third-quarter profit, analysts said.

"The operating environment has deteriorated," said Cheng Ming-Kai, an analyst at CLSA Ltd, who has an "outperform" rating on the company.

The company is using less equipment because of fewer orders from makers of computers and electronic games. Capacity use fell to about 70 percent in the third quarter from 85 percent in the second quarter, the company said.

Capacity use may fall to 60 percent in the fourth quarter as sales drop by about 10 percent from the third, analysts said.

The company's third-quarter shipments of silicon wafers, the raw material used to make chips, dropped by a single digit percentage from the second quarter, Chairman Morris Chang (張忠謀) said in an interview last month, reiterating an earlier company estimate.
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