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TSMC to see strong growth

"After massive labor lay-offs and some plant shut downs, inventories are now at famously low levels. This is why Taiwan's foundries are now getting orders."

Chris Hsieh, an analyst with ING Securities Ltd

The world's largest manufacturer of made-to-order computer chips, Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電), is expected to report very strong growth in the second quarter, which will carry through into the third quarter, industry analysts said yesterday.

"The second quarter is going to be very strong for TSMC in terms of quarter-on-quarter growth," said Chris Hsieh (謝偉民), an analyst with ING Securities Ltd. "We expect the second-quarter order strength to last into the third quarter."

Another analyst agreed.

"We're looking at a good quarter again next quarter," said James Huang, (黃建銘), an analyst at SinoPac Securities Corp (建華證券).

In May, TSMC reported sales of NT$16.8 billion, up 10 percent from NT$15.3 billion in April. Sales are expected to keep rising over the next three months to top NT$18 billion by August, the analysts and local Chinese-language media reports said yesterday.

TSMC's spokesman remained tight-lipped about forecasts beyond this quarter yesterday.

"We have not given any firm comments for the third quarter and for the second half of this year," TSMC spokesman Tzeng Jinnhaw (曾晉皓) told the Taipei Times yesterday.

But TSMC has been consistently winning orders from overseas technology companies as they bail out of the prohibitively expensive chipmaking business. Analysts have estimated that a new computer chip making facility, or foundry, can cost US$1.5 billion.

"Overseas chipmakers have been cutting back production since 2001," Hsieh said. "After massive labor lay-offs and some plant shut downs, inventories are now at famously low levels. This is why Taiwan's foundries are now getting orders."

The most recent orders TSMC has bagged are for Internet chips, local media speculated yesterday.

"The news indicates that TSMC received rush orders recently from [US-based] Marvell Technology Group which has launched new [broadband Internet] products," Huang said. "Marvell wants to win more market share from its competitors by using Taiwan companies to design and produce its chips."

Orders from Marvell are expected to show up in TSMC's August sales figures.

Reports have suggested that TSMC's increasing capacity utilization rate, or the proportion of equipment it is using at all of its facilities, is a sign that the chip industry is recovering. But ING's Hsieh sounds a warning note.

"The capacity utilization rate has risen from around 60 percent to over 80 percent now, but [TSMC's fabs] are still 15-20 percent idle," he said.

"That looks OK when share prices are at NT$40 and NT$50, but will not look so good when shares rise to NT$60," Hsieh said.

TSMC's shares fell NT$1, or 1.7 percent, on the TAIEX yesterday to close at NT$57.50.

In related news, TMSC announced a stock dividend pay-out of NT$0.80 per common share for the first quarter of the year yesterday.

"Each shareholder will be entitled to receive a stock dividend of 80 shares for each 1,000 shares held by such shareholder," Taiwan Semiconductor said in an e-mail statement.
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