Market responds to TSMC sales

Positive comments by a spokeswoman in Taiwan Semiconductor Manufacturing Co's (TSMC, 台積電) finance department about sales prospects this quarter yesterday sent share prices and analyst forecasts soaring.

In late July, TSMC -- the world's largest manufacturer of computer chips for other companies, or foundry -- said that shipments would increase by between 5 percent and 9 percent this quarter.

At an investor conference in New York on Wednesday, TSMC's deputy director of investor relations Elizabeth Sun (孫又文) said that shipments would "probably be at the higher end" of this forecast, which TSMC spokesman Tzeng Jinnhaw (曾晉皓) confirmed yesterday.

On the strength of the news, Andrew Lu (陸行之) of Citigroup Inc's Salomon Smith Barney Taiwan Ltd yesterday raised his target price for the company's shares from NT$74 to NT$91 by year-end, according to Bloomberg News.

TSMC's shares then jumped by as much as 4.6 percent on the TAIEX, finally closing up NT$2, or 3 percent, at NT$68.

Tzeng, however, denied there had been any change in the company's forecasts.

"We did not raise our guidance for this quarter," he said.

Other analysts were not so quick to change their forecasts.

"Our target price is NT$75 for TSMC by the end of the year," said Chris Hsieh (謝偉民), an analyst with ING Securities Ltd in Taipei.

"Sales growth would have to be much stronger than 10 percent quarter-on-quarter to warrant increasing our target price [to over NT$90]," Hsieh said.

Both TSMC and smaller rival United Microelectronics Corp (UMC, 聯電) may be benefiting from increased spending on new computer equipment as the US and Asian economies improve. But TSMC seems to be widening its lead on its rivals, analysts said.

UMC yesterday gained NT$0.30, or 1.1 percent, to NT$28. Since January, TSMC's shares have risen by 60 percent, while UMC has only seen a 20-percent increase.

"You have to attribute the widening of the gap between the two to TSMC's position as the largest foundry, which means a more diversified base of customers," Hsieh said. "They are better prepared to weather the volatility of the semiconductor market and also the up and down of their customers' fortunes due to market share shifts."

A combination of unsuccessful business strategies at UMC and good ones at TSMC has created a widening gap between the two companies, another analyst said. "Over the past two years, TSMC has done a better job than UMC in meeting customer needs," said Tony Tsai (蔡東松), director of corporate ratings at Taiwan Ratings Corp (中華信評), Standard & Poor's local affiliate.

UMC entered the foundry business in 1995 and concentrated on companies that designed chips for the communications industry. But when the telecommunications bubble burst in 2000, UMC was affected much more than TSMC, which had its risk spread over more sectors, Tsai said.

In addition, over the past four years, UMC has had four different chief executive officers, each heralding a new business model. But UMC has yet to find the right one to close the gap on TSMC, analysts said.

"UMC is No. 2 and a lot smaller, which means it has the incentive to create a new business model for itself," Hsieh said. "It is trying to adapt a new business model and identify select business partners with the hope of getting increased orders."