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TSMC quarterly earnings weak

Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電), the world's top contract chipmaker, yesterday posted its weakest quarterly earnings in five quarters amid an ongoing inventory-driven downturn.

However the firm expected the business to rebound in the second quarter when most customers, primarily handset makers, are expected to have reduced their excessive inventories to healthier levels by the end of March.

"We're seeing the bottom of the inventory correction in the first quarter. We believe we'll start to recover by the end of March," TSMC chief executive Rick Tsai (蔡力行) told investors yesterday.

During the fourth quarter of last year, TSMC's earnings dropped 17.7 percent to NT$27.91 billion (US$851 million), or NT$1.08 per share, compared with NT$33.9 billion, or NT$1.26 a share, a year earlier.

The quarterly results are the lowest since the third quarter of 2005.

BOOKING

"I think, overall, booking is improving in line with our forecasts," Tsai said.

"We think end market demand is reasonably good," Tsai added.

Roland Shu (徐振志), a semiconductor analyst with JP Morgan, said that TSMC's outlook mostly matched his expectations, but that he expected the chipmaker to produce "a higher-than-expected growth in the second quarter."

Before the anticipated recovery, TSMC's chief financial executive Lora Ho (何麗梅) said that revenues were expected to fall to between NT$62 billion and NT$64 billion in the current quarter, which would represent about a 15 percent decline on the previous quarter's figure.

Last quarter, revenues slid 5.4 percent year on year to NT$74.96 billion with the biggest contribution, or 42 percent, from communications customers.

GROSS MARGIN

Gross margin is expected to contract to between 37 percent and 39 percent this quarter from 46 percent in the fourth quarter because of falling prices and decreasing equipment utilization.

Spending on new facilities and equipment for this year should rise slightly to between US$2.6 billion and US$2.8 billion from roughly US$2.47 billion last year, which would be partly translated into a 18 percent year on year capacity expansion, Ho said.

Local rival United Microelectronics Co (UMC, 聯電) had only planned to spend US$1 billion last year.

CONFIDENT OUTLOOK

Constant capacity buildup reflects TSMC's confidence in the growth of the semiconductor industry, with Tsai projecting an increase in the revenue of all semiconductor companies of between 4 percent and 6 percent annually this year.

He said the annual growth rate was between 8 percent and 9 percent last year.

TSMC's cash assets were also in investors' sights yesterday, especially after UMC had said it planned to pay back NT$57.4 billion to shareholders by canceling 30 percent of its equity to better utilize capital.

"We won't rule out the possibility of reducing capital in the future, but capital reduction is not on the front burner for TSMC," Tsai said. "We are exploring all possibilities to better utilize our cash position."

SHARE BUYBACK

A share buyback could be one option, as TSMC's major shareholder Royal Philips Electronics NV has said it plans to lower its holding in the company, Tsai said.

If that is the case, the shares repurchased by the company would be canceled, he added.

TSMC has lavish reserves of cash and marketable securities, amounting to NT$195.1 billion as of the final quarter of last year, up 34 percent from a year ago, according to its statement.

TSMC shares yesterday rose 0.71 percent to NT$71, while the stock price of UMC leapt 3.1 percent to NT$21.6 on the Taiwan Stock Exchange yesterday, both outperforming the primary TAIEX index, which lost 0.15 percent.
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