TSMC shares plunge on lower chip pricing forecast

Shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) took their biggest drop in eight months yesterday after the company predicted that the average selling price (ASP) for its wafers will continue to fall this quarter.

The world's largest contract chipmaker said capacity utilization is expected to improve to 90 percent in the third quarter and its shipments of wafers will increase about 15 percent from the second quarter. But guidance that its ASP to fall 3 percent to 5 percent due to pricing pressure and a maturing product mix shook investors' confidence in the company.

TSMC, which said its ASP fell 5.4 percent in the second quarter, saw its share price fall 4.5 percent to close at NT$53.10 on the Taiwan Stock Exchange yesterday, its biggest decline since Nov. 22.

"Declining average selling prices on improving demand and utilization rates will place pressure on incremental profitability," Bill Ong, a California-based analyst at American Technology Research, wrote in a note dated Tuesday.

Ong has a "hold" rating on TSMC's stock.

In another report on Tuesday, JP Morgan said TSMC's forecast for its prices was "the most surprising aspect" of its guidance.

However, the brokerage maintained its overweight rating on TSMC and estimated a fair value by the end of December of NT$71.

Murat Atamer, a Taipei-based analyst at Primasia Securities Co, said he "not positive" about the shares, which already reflect much of the industry growth.

Atamer said he would downgrade TSMC's shares to a "hold" from "buy."

SinoPac Securities Corp (建華證券) also dropped its 12-month target price for TSMC to NT$61 from NT$64.

"Given its 10 percent quarter-on-quarter growth outlook, we would watch for opportunities to scoop up shares once the correction runs its course," the brokerage said in a note sent to investors yesterday.

Andrew Lu (陸行之), a Taipei-based analyst at Citigroup Smith Barney, said he recommends buying TSMC's shares, saying "utilization recovery, margin improvement, ASP recovery for Q4 and wafer inventories build are all on track."

Lu, who has a "buy" rating on TSMC's stock, raised his earnings estimate for this year by 5.8 percent to NT$3.29 a share. TSMC reported that its profit slid 21 percent to NT$18.37 billion (US$576.6 million), or NT$0.74 a share, in the second quarter.