Fri, Jan 28, 2005 - Page 10 News List

TSMC reports poor Q4 growth

SLOW START The semiconductor manufacturer said its growth would decline in the current quarter, but inventory digestion should bring earnings back up later in the year

By Lisa Wang  /  STAFF REPORTER

Taiwan Semiconductor Manufact-uring Co (TSMC, 台積電), the world's biggest contract chipmaker, yesterday reported slower quarterly growth as excessive inventory crimped demand for its products.

But the company gave a clear hint that the foundry business would hit bottom in the current quarter, as customers, especially the chip designers, are close to finish with inventory digestion over the past two or three quarters.

"Foundry growth should resume in the second quarter [in terms of shipments]," company chairman Morris Chang (張忠謀) told a quarterly investors' conference yesterday.

Despite strong signals of a turnaround, Chang is turning more cautious about the overall foundry business and semiconductor industry for this year.

Cutting his forecast for global semiconductor sales, Chang said sales would fall 2 percent before resuming growth of 10 percent next year. Foundry companies would decline a few percent points more than that, he said.

In the last quarter of 2004, TSMC earnings fell by 20 percent to NT$22.18 billion, or NT$0.96 per share, versus the NT$27.93 billion, or NT$1.2 a share, in the third quarter, according to the company.

"Due primarily to customer inventory digestion, our 2004 fourth quarter business had declined as we expected," TSMC chief financial officer Lora Ho (何麗梅) said.

During the same period, wafer shipments fell by 8.5 percent at a quarterly pace, Ho said.

The quarterly result, however, represents a 40 percent growth compared to NT$16 billion a year earlier, the company said.

Overall, TSMC's 2004 earnings surged to an all-time high of NT$92.32 billion, or NT$3.97, on record revenue of NT$NT$255.99 billion, after an anemic fourth quarter.

TSMC gave a bleak outlook for the current quarter.

"2005 first quarter business conditions are likely to exhibit a normal seasonal pattern in the end market," Ho said.

"[Demand from] all segments will decline. Only few product segments such as MP3 and digital cameras will move up," Ho said.

Despite this, TSMC decided to move against the grain. TSMC said it plans to spend more, between US$2.5 billion and US$2.7 billion, mostly on advanced equipment this year, up from US$2.2 billion last year. The new capital expenditure will help boost TSMC's total capacity by 24 percent in this year versus last year.

"The bigger-than-expected capital spending is like casting a vote of confidence for the industry," said Johnny Chen (陳政隆), vice president of Deutsche Bank's equity research division.

"Chang's comments sound like the industry is hitting bottom in the current quarter, as most of TSMC's customers are close to an end of inventory digestion corresponding with our survey," Chen said.

"After that, TSMC should be on the way up," he said.

The company may have a 7 percent or 8 percent increase in sales in the second quarter after weathering a slow first quarter, Chen forecast.

In the first three months, TSMC said sagging demand would further bring down its wafer shipments by another single-digit percentage point for the second straight quarter, from 1.22 million units shipped last quarter.

Factory utilization rate would also drop to around 78 percent from 88 percent in the fourth quarter, Ho said. But the Hsinchu-based chipmaker will be able to hold steady its average selling price, Ho said.

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