Mon, Feb 26, 2007 - Page 12 News List

TSMC seeks global icon status

THE TOP 100 CLUB Having weathered a change in management and a slowdown in the market, the 20-year-old chipmaker now covets membership in a select club


As it readies itself to celebrate its 20th anniversary in April, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) -- the world's top contract chipmaker -- hopes to develop into a company like General Electric Co or Microsoft Corp.

But before it can achieve that goal, it has to be seen whether the chipmaker will be able to sustain its past growth under a new chief executive, who in an unexpected reshuffle took the rein 19 months ago.

In the summer of 2005, TSMC's 75-year-old chairman Morris Chang (張忠謀) handed over his key role at the company -- which in spite of the cyclical nature of the industry managed to make a profit for the past 17 years in a row -- to Rick Tsai (蔡力行).

The latest industry downturn of last year was the first trial that Tsai, 53 years old, had to manage since he was tapped as the successor of Chang.

Given that TSMC has performed well during the ongoing industry slowdown, investors might be inclined to give Tsai a vote of confidence.

TSMC's profits and revenues set record highs at NT$127.01 billion (US$3.85 billion), or NT$4.92 per share, and NT$317.41 billion, respectively, last year, demonstrating a much better managing of the inventory-driven downturn than its closest competitor United Microelectronics Co (UMC, 聯電).

UMC earned NT$32.6 billion, or NT$1.81 per share, last year, only one fourth of the net income made by TSMC. Ninety percent of UMC's net income was asset gains.

Given these remarkable results, TSMC planned to give a cash dividend of NT$3 a share for last year -- its largest ever -- and a stock dividend of 5 shares for every 1,000 held.

TSMC has recently begun widening its lead over competitors, industry analysts said.

Macquarie Securities and BNP Paribas Securities upgraded TSMC to "outperform," or reiterated a "buy" call on the firm, on optimism over earning improvement.

Many investment houses, meanwhile, maintained "hold," or "neutral" on rivals like UMC and Semiconductor Manufacturing International Corp (SMIC, 中芯), China's largest chipmaker.

Tsai's ability to implement the company's strategies -- his self-discipline and experience in the semiconductor industry -- is believed to have been one of the main factors behind TSMC's impressive performance.

Tsai started working at TSMC in 1989, two years after the semiconductor company was established. Before TSMC, Tsai had worked for eight years at Hewlett-Packard Co.

"Looking forward, we hope TSMC will be one of the world's top 100 companies, like GE or Microsoft," Tsai said last month during a press gathering in Hsinchu.

"Morris [Chang] is a coach and a good mentor to me," Tsai said.

Tsai knew that leading the company in an industry that has registered a slowing growth rate and become increasingly competitive would represent a challenge.

He believed that the overall industry would register a mild 4 percent to 6 percent growth in revenues this year.

The annual growth rate was 8 percent to 9 percent last year and in the high-teens during the 1990s.

"We are not making such statements now," he said in response to an investor's question about whether TSMC would outpace industry growth as Tsai's predecessor had told investors before.

In the short term, however, TSMC could rebound from the latest trough in the third quarter about one quarter earlier than rivals, JP Morgan analyst Roland Shu (徐振志) said.

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