TSMC rally may help computer industry

"Conditions are still not great, but there is a hint that we are on the cusp of a turnaround."

Johnny Summers, fund manager for Jade Absolute

A rally in Asian computer-related shares such as the Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) may have further to run on signs that business is improving after a slump of more than two years.

TSMC's have risen 32 percent in the last six weeks, Seoul-based Samsung Electronics Co has climbed 20 percent and Japan's Toshiba Corp is up 25 percent. They pared their gains today after mobile-phone supplier Motorola Inc cut sales estimates. Some investors, though, see signs that demand for computers and electronics is rebounding after chip sales had their worst decline in 2001 and barely rose last year.

"Conditions are still not great, but there is a hint that we are on the cusp of a turnaround," said Johnny Summers, who helps manage US$100 million at Jade Absolute Fund Managers in London, including shares of Quanta Computer Inc (廣達電腦), which today extended its six-week climb to 17 percent.

``This rally has some legs to it,'' he said.

A decline in SARS has helped spur the rally, with investors rushing to add shares of Asian computer-related companies. Last week's comments from Intel Corp chief financial officer Andy Bryant that sales of processors used in personal computers and servers are at the high end of what's normal for the quarter reinforced the optimism.

In the past, investors have turned upbeat about the technology industry only to see their expectations dashed.

Last year's weaker-than-expected holiday selling season punctured optimism built up in the middle of year.

Some aren't yet convinced it will be different this time.

"We're getting mixed signals," said Pedro Tai, who helps manage US$40 million at ABN Amro Asset Management in Taipei.

"We need to see more hard evidence," he said.

Still, Asia's computer-related shares have lagged the performance of rivals in the US, meaning they may yet have room to rally further, other investors said.

"There's a scramble to get positions in technology in Asia," said Richard Keery, who helps manage US$500 million in Asian stocks at Edinburgh Fund Managers in Scotland, including shares of TSMC.

"The drivers are in place," he said.

Shares TSMC fell NT$1.50, or 2.5 percent, to NT$57.50 after US-based Motorola Inc, the world's No. 2 mobile-phone maker, said second-quarter sales will fall as low as US$6 billion from an April estimate of as much as US$6.6 billion, wiping out its forecast profit for the period.

It blamed the drop on SARS, which damped consumer demand.

Samsung Electronics, a maker of both computer chips and mobile phones, was unchanged in Seoul after earlier falling 1.45 percent. Toshiba declined 3 percent to ?387 in Tokyo.

Venture Corp of Singapore, which has climbed 17 percent in the past six weeks, fell 0.6 percent to S$16.40. Quanta climbed 2.1 percent to NT$74.5.

Underlining tentative nature of the recovery, market researcher International Data Corp said global personal-computer shipments will rise 6.3 percent this year, lower than a March estimate for 6.9 percent growth.

It cited the outbreak of SARS and slowing orders from consumers in Asia and Europe.

The past pattern of rising expectations followed by disappointment may not be repeated this year because the quick end of the US war against Iraq removed a barrier that had prevented companies from buying computers and electronics, said George Wu (吳裕良), a Taipei-based analyst with Primasia Securities Co.

"It's very much different from last year," Wu said.

"The war is over and confidence is picking up."

US confidence climbed to its highest in six months in May. Interest-rate cuts by the European Central Bank have also added to the optimism, analysts said.

TSMC Morris Chang (張忠謀) said last week he's "cautiously optimistic" that third-quarter demand will show an increase from the second quarter.

His company forecasts its sales will rise 20 percent this year.

Some in "second- and third-line" stocks such as Singapore-based Chartered Semiconductor Manufacturing Ltd (特許半導體) may not be justified, Summers said.

Chartered, which is heading for its 10th straight unprofitable quarter, has risen 49 percent since April 28. The stock fell 0.5 percent today to S$0.97 .

The rally has "some fundamental truth behind it, but valuations seem to be a bit stretched," said David Poh, a Singapore-based money manager with Alliance Capital Management, which invests US$9 billion in Asia.

"If the market continues to rally, I'll be trimming my positions into strength," he said.

Others they plan to hold on. Chipmakers, chip-testers and makers of flat-panel displays such as AU Optronics Corp (友達光電) may continue rising, said Vincent Lai, who helps manage the equivalent of US$865 million at HSBC Asset Management Taiwan.

AU Optronics shares rose 1.2 percent today to NT$24.5. "The technology rally still has some upside potential," Lai said.