Thu, Jan 04, 2007 - Page 11 News List

TSMC to gain additional profit from relaxed rules

MORE IN THE POCKET The world's top contract maker of chips will gain a windfall from being closer to its clients as well as the importance of 0.18-micron technology

By Lisa Wang  /  STAFF REPORTER

Taiwan Semiconductor Manufact-uring Co (TSMC, 台積電), the world's top contract chipmaker, will enjoy an additional 4 percent increase in revenues this year on more new orders after the government allowed local firms to make chips in China with advanced technology, an investment research firm said yesterday.

Last week, TSMC said that the government's decision to permit local semiconductor companies to make chips using 0.18-micron processing technology would help TSMC win more orders and expand its market share in the Chinese market.

"We believe TSMC will benefit the most [from the government's new policy]," said Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities, in a report released yesterday.

Demand for chips made with 0.18-micron technology, which is mostly used in consumer electronics including small panel LCD driver ICs and digital music players, in China would be sustained by thriving Chinese electronics makers and contract chip designers, Chen said.

Being closer to customers, TSMC would gain more orders from its current customers for their Chinese operations including Freescale Semiconductor Inc and Broadcom, Chen said.

He added that those companies are now using chips made by Semiconductor Manufacturing International Corp's (SMIC, 中芯) processing technologies, ranging from 0.18-micron to 0.13-micron modes, to meet demand in China.

In the short term, that would add 4 percent to TSMC's 2007 revenues as well as more than 2 percent in additional net income, Chen said.

He previously predicted that the chipmaker would expand revenues and net profits by 9 percent and 12.8 percent annually, respectively, to NT$345 billion and NT$141 billion this year.

SMIC, however, would suffer a 7 percent reduction in revenues this year after TSMC built a greater presence in the Chinese market, he said. SMIC, China's biggest chipmaker, sources 30 percent of its total revenues from chips made on 0.18-micron processing technology, he said.

In the long term, TSMC would be better positioned than rivals to build solid ties with Chinese chip design houses through its popular 0.18-micron solution, he said.

Chen maintained a "buy" rating on TSMC, with a target price of NT$72, implying a 5.5 percent upside from the stock's closing price of NT$68 yesterday.

Shares of SMIC, meanwhile, rose the most in more than two years on speculation that the company could become the target of an acquisition bid by private equity investors.

The Shanghai-based company's stock surged 13 percent, the most since Oct. 7, 2004, to HK$1.23 at the end of trading in Hong Kong yesterday, after gaining as much as 14 percent.

The firm's shares fell 3.8 percent last year, compared with a 34 percent gain on Hong Kong's benchmark Hang Seng Index. TSMC's stock gained 11 percent last year.

Additional reporting by Bloomberg

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