Tue, May 27, 2003 - Page 10 News List

TSMC sees 20 percent profit gain

CUTTING EXCESS The semiconductor giant benefits from the fact that it can produce quality chips in volume which most of its rivals simply cannot match

BLOOMBERG , TAIPEI

Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電) said it expects this year's sales to rise by a fifth from last year, aided by production technology few rivals offer.

TSMC said sales this year will rise by more than double the 8.4 percent pace forecast for the industry by researcher Gartner Inc, which expects global sales to reach NT$168 billion this year. The company's sales last year were NT$162.3 billion (US$4.7 billion).

TSMC is benefiting from more-efficient production lines that can make chips with transistors measuring 0.13 micron, the smallest commercially available. Customers such as Nvidia Corp, which designs graphics chips for personal computers and Microsoft Corp's Xbox video-game console, use the company because most rival chipmakers can't produce the quality or volumes they need.

"It's possible," said Chris Hsieh (謝偉民), an analyst with ING Securities Ltd, of the sales forecast.

TSMC will lift its use of production equipment to 77 percent this year from 71 percent last year, helping to boost earnings per share by nearly two-thirds to NT$1.88 from NT$1.14, Hsieh forecast.

The company's shares rose NT$0.7, or 1.4 percent, to close at NT$49.80 on the TAIEX. The stock has gained 16.9 percent this year.

TSMC chairman Morris Chang (張忠謀) made the sales prediction, company spokesman Tzeng Jinnhaw (曾晉皓) said, responding to a local newspaper report.

The company's sales rose 29 percent last year, in line with a first-quarter forecast by Chang.

Global semiconductor sales last year rose 1.6 percent to US$155 billion, after dropping by about a third in 2001, the industry's worst-ever decline.

TSMC's most advanced production equipment will probably be fully utilized by the second half, the newspaper said.

The company's 0.13-micron equipment was 80 percent used in the first quarter against an overall usage rate of 67 percent, TSMC said last month. It forecast usage of its 0.13-micron lines would rise to 85 percent in the second quarter.

The company has said it will limit investment in fresh capacity unless it's sure the new equipment will be fully utilized. Cutting excess capacity will be essential to raise profits, investors said.

"The key is to enhance returns by spending less on capital" investment, said Samir Mehta, who counts TSMC shares among the US$1.9 billion he helps manage for Lloyd George Management.

"When there is so much capital in this industry, returns tend to fall," he said.

The profitability of TSMC and other so-called chip foundries -- which make semiconductors for companies that either don't have their own factories or can't invest in new capacity -- has declined in recent years as rivals in China and Southeast Asia have entered the business.

TSMC's gross margin -- the percentage of sales remaining after production costs -- was 32 percent last year. That's down from the 50 percent margins the company and next-larger rival United Microelectronics Corp (聯電) had earlier in the past decade, rivaling those of Intel Corp, the world's biggest chipmaker.

TSMC is aiming for a return on equity, or net income divided by shareholders' funds, of 20 percent after missing that goal in the past two years. Return on equity was 7.5 percent last year and 5.4 percent in 2001, down from 31.4 percent in 2000.

Separately, TSMC on May 29 will spend NT$13 billion to buy back shares from Royal Philips Electronics NV, reducing the Dutch company's shareholding in the Taiwanese company to about 20 percent from more than 27 percent, Tzeng said.

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