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TSMC's Q2 profits drop 25% due to declining prices

Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電), the world's biggest contract chipmaker, yesterday posted a 25 percent decline in second-quarter profits as a result of declining prices, but the company expects a solid recovery next quarter.

Net income fell to NT$25.48 billion (US$775.9 million), or NT$0.96 per share, during the quarter that ended on June 30, compared with NT$34 billion, or NT$1.29 per share, a year earlier, TSMC said in a statement.

On a quarterly basis, the result represented about a 35 percent increase.

"The recovery was back in March and will extend into the third quarter. Our growth will continue to show progress," chief executive Rick Tsai (蔡力行) told investors yesterday.

TSMC, which supplies chips to Texas Instruments Inc, the world's biggest mobile phone chipmaker, and other companies, said customers reduced their stockpile to a healthy level last quarter, buckling the historic upswing ahead of peak season in the second half.

"[In] all three segments -- computers, communications and consumer electronics -- we are seeing an upward trend," Tsai said.

Reflecting a rise in orders, TSMC expects revenues of between NT$85 billion and NT$87 billion in the third quarter, which would be a 13 percent to 16 percent increase from the second quarter's NT$74.92 billion.

Pricing pressure, however, replaced the long-running inventory problem as the main concern of investors yesterday.

Tsai said TSMC's ASP dropped 6 percent at a quarterly pace last quarter, but he expects the decline to slow in the second half of the year.

"We believe a weaker ASP will continue to weigh on TSMC's gross margin in the third and fourth quarters," said Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities' Taipei branch.

TSMC expects its gross margin to hold steady at 43 percent, or improve slightly to 45 percent, during the third quarter, in contrast to double-digit percent growth in revenues.

Chen, however, said he would not downgrade TSMC as Goldman Sach did last week on falling ASP.

"We think the share price has factored in this recently, and it should be the time to buy," Chen said.

Tsai said this whole year would be a lukewarm period for contract chipmakers as revenue growth would be lower than the 3 percent to 4 percent annual rate he projected for the whole semiconductor industry, mostly because of excessive stockpiling in the first quarter.

TSMC said it would not change its capital spending prediction for this year from the forecasted US$2.6 billion to US$2.8 billion range.

Shares of TSMC dropped 2.01 percent to NT$68.2 yesterday, compared with a 1.78 percent loss on the benchmark TAIEX.

Rival United Microelectronics Corp (UMC, 聯電) fell 1.27 percent to NT$19.5.
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