TSMC reports profit slide

Affected by an inventory glut, Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電), the world's top contract chipmaker, yesterday announced its weakest performance in four quarters and warned that sales would remain sluggish in the fourth quarter.

TSMC said that third-quarter net income dropped 4.4 percent to NT$32.49 billion (US$977 million), or NT$1.26 a share, compared with NT$34 billion, or NT$1.32 a share, made in the second quarter.

On a year-on-year basis, however, third-quarter earnings were up 32.5 percent from NT$24.49 billion, or NT$0.95 a share.

While fourth quarter is historically the seasonal peak for chip sales, TSMC expects the inventory problem to persist this quarter.

"We expect a lot of our customers will not make significant progress in inventory digestion until the end of the fourth quarter," TSMC chief executive Rick Tsai (蔡力行) told investors yesterday.

"Customers in the handset sector will take more time," Tsai said, echoing the warning from one of its customers, Texas Instruments Inc, the world's biggest supplier of chips used in mobile phones, that the growth this quarter would be lower than the seasonal average.

The mobile phone and related business make up the biggest share of TSMC's revenue.

The company expects revenues this quarter to decline another 8 percent to 10 percent to NT$74 billion to NT$76 billion from NT$82.48 billion in the third quarter.

Gross margin would drop as much as 2.9 percentage points to 45 percent to 47 percent in the current quarter, the company added.

TSMC's comments about fourth-quarter prospects matched its rival United Microelectronics Corp's (UMC, 聯電) forecast that excessive inventory on the customer side would cause a slowdown in its shipment and utilization rate, as well as affect chip prices in the quarter ending December.

Eric Chen (陳慧明), a semiconductor analyst at BNP Paribas Securities, said he was not surprised at TSMC's third-quarter results or the company's bearish outlook for the fourth quarter.

"But the forecast decline in gross margin in the fourth quarter is higher than our estimate, which means price competition is much more intense, especially in the area of advanced technologies," he said.

TSMC said the utilization rate for advanced 12-inch plants would be lower than the average ratio in the last quarter.

Despite the downbeat guidance about the final quarter of the year, Chen said he would not change his positive view on TSMC as the chipmaker is making progress in developing next-generation technologies.

As the inventory level should gradually drop, "the first quarter [next year] could be the bottom for this latest downturn," Chen said.

Tsai said that short-term industrial ups-and-downs would not affect its capacity expansion plan, as "we remain positive about the semiconductor industry's mid and long-term growth."

Based on this optimism, the company's spending on new facilities and equipment would increase moderately next year from US$2.6 billion this year, Tsai said.

TSMC's shares dropped 1.28 percent to NT$61.5 on the Taiwan Stock Exchange yesterday, underperforming the TAIEX's 0.3 percent slide. Shares of rival UMC fell 0.3 percent to NT$18.05.