TSMC's Q4 profit lower than expected

Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電) reported a 19.2 percent decline in its fourth-quarter profits yesterday, to NT$2.55 billion from NT$3.16 billion in the third quarter. This was 43.4 percent lower than for the same period in 2001.

"The profit figure was a little bit of a shock," said Rick Hsu (徐禕成), an analyst at Nomura International in Taipei.

On Monday Bloomberg polled five analysts who forecast average profits for the chipmaker of NT$4.9 billion, almost double the actual result.

Although TSMC Vice President Harvey Chang (張孝威) attributed the shortfall to higher equipment costs, analysts said the company offered major discounts last year.

"TSMC offered a discount to Nvidia, its largest customer," Hsu said. "I did not anticipate they would offer a price rebate to Nvidia."

Another feels the discounts were more widespread.

"TSMC gave a discount to all its major customers, not only Nvidia, to maintain good customer relations" said George Wu (吳裕良), an analyst at Primasia Securities Co.

In the last three months of last year, total sales at the world's largest maker of made-to-order computer chips grew 3.3 percent quarter-on-quarter and 24.2 percent year-on-year for the same period, to top NT$41 billion.

TSMC Chairman Morris Chang (張忠謀) was reserved about this year's outlook.

"Many CEOs at technology companies around the world are very conservative about the prospects for growth this year," he said.

Chang predicted an average growth rate for the year of 8 percent in the semiconductor industry. He said the company would outpace others in the sector this year, but that there would be no pick-up in demand for TSMC before the second quarter.

Shipments will remain flat or decrease slightly in the first quarter and the average selling price of its chips will fall by up to 7 percent, he said.

In the fourth quarter of last year, TSMC used 61 percent of its total manufacturing capacity. This will stay the same in the first quarter of this year, Chang said.

The company also announced that it would spend less on equipment this year, down from US$1.85 billion last year to between US$1 billion and US$1.5 billion.

Chang said that TSMC was in no hurry to jump across the Taiwan Strait.

"The China market is huge and we need to be there ... the soonest we will enter China is in the second half of 2004," he said.

Chang said the China market would not grow rapidly and that there was no need to rush investments there.

"We will take a step, look at our position and prepare for the next step," he said.

Last week the government gave TSMC preliminary approval to invest in an 8-inch wafer fabrication plant in China. Some opposition lawmakers protested the move.

"Morris Chang is a very cautious man who will not say anything to upset his chances of winning final approval from the government," Wu said.