Mon, Jul 26, 2004 - Page 10 News List

TSMC may post solid earnings

OUTSOURCING Increased demand because of a number of wireless orders has driven up profits for the contract chipmaker, but fears of an electronics downturn are growing

By Lisa Wang  /  STAFF REPORTER

The world's top contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), may post solid quarterly earnings, but signs of weakening demand could throw a shadow over the growth, analysts said yesterday.

TSMC may report higher earnings of NT$23 billion on Thursday, 22 percent up from NT$18.79 billion three months ago, driven by increased outsourcing from wireless orders from Texas Instruments Inc and Qualcomm Inc, according to the latest report by Merrill Lynch.

Earnings per share will also rise to NT$0.98 from NT$0.93 during the three-month period to last month, according to the report.

"We believe Taiwan's foundry sector will post robust results in the second and third quarters, but early sings indicated that they might momentum in the final quarter," said Bill Lan (藍新仁), a fund manger, who helps oversee a NT$5 billion fund for Jih Sun Securities Investment Trust Co (日盛投信).

"The key indicator, semiconductor book-to-bill ratio, is poised to dip," Lan said.

"And that could serve as the first blip signaling the widely expected semiconductor downturn next year," Lan said.

That is mostly in line with Merrill Lynch's dismal forecasts, which expect TSMC's revenue growth to decelerate in the following quarters to dip into the negative territory in early next year.

"Based on our recent checks, order momentum, in fact, appears to be slowing, while capacity growth is accelerating," Merrill Lynch's report said.

TSMC's revenue growth is expected to slow to 8 percent during the current quarter sequentially after a 12.8-percent rise during the April to June period quarter on quarter.

The quarterly growth could slow further to 5 percent in the final quarter and drift to negative 3 percent in the first three months of next year, according to Merrill Lynch's report.

The Hsinchu-based wafer foundry's sales grow to a record NT$64.87 billion after deducting first-quarter's NT$57.51 from NT$122.38 billion in sales TSMC reported earlier for the first six months.

"We're looking for sings of an inventory snap-back throughout the second quarter given tight utilization rates, but evidence of that occurring never emerged," Merrill Lynch said.

Merrill Lynch retained unchanged its "neutral" rating on TSMC after downgraded the stock from "buy" in mid-July as part of the research house's broader downgrading on global semiconductor sector to "underweight" from "overweight" on worries about ballooning inventories.

Smaller competitor United Microelectronics Corp (UMC, 聯電), which is set to hold the quarterly investor's meeting Wednesday, is expected to report strong financial result by earning NT$7.5 billion, or NT$0.47 a share, according to BNP Paribas Peregrine's projection.

"Strong results of the two foundry heavyweights may help the stock prices bounce back. But, in the long run, the good fundamentals will fail to buoy these shares, as worries about a slowdown in 2005 will keep investors' buying onhold," Lan said.

TSMC shares have declined 11 percent on the benchmark TAIEX, to NT$42.8 as of last Friday, since the beginning of the month.

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