Fri, Feb 01, 2008 - Page 12 News List

TSMC posts record quarterly profits

WEAKNESS AHEAD The chipmaking giant said capital expenditure this year would be lower but enough to support equipment upgrading and expansion to match demand


Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電) yesterday reported record quarterly profits on better-than-expected demand for PC and handset chips, but said it was slashing capital expenditure (capex) this year by 30 percent in light of an industry slowdown.

The world's top contract chipmaker said that fourth-quarter net profit surged 23.5 percent to NT$34.5 billion (US$1.07 billion), compared with NT$27.9 billion a year earlier.

That brought its full-year net profit to NT$109.18 billion, down 14 percent from 2006.

"Stronger-than-expected demand for TSMC wafers across all major product segments led to the fourth-quarter results approaching, or exceeding the high end of the [company's] guidance," chief financial officer Lora Ho (何麗梅) said in a statement.

But, considering the potential impact of a weakening global economy stemming from the US subprime credit crunch, TSMC chief executive Rick Tsai (蔡力行) cut his forecast revenue growth for the semiconductor industry to between 4 percent and 6 percent this year, from his previous estimate of between 6 percent and 8 percent growth that he made three months ago.

"We have factored in the [possible impact] of the subprime [crisis] on end demand," Tsai said.

But he said TSMC would continue to outperform the semiconductor industry.

"We observe that our major customers from different [product] segments are positive about the business outlook, but they are not placing orders as fast as they used to as they are deeply concerned about the macro environment," Tsai said.

To keep factory usage at a high level and to match customer demand,TSMC plans to spend US$1.8 billion on new equipment this year, Tsai said, down roughly 30 percent from US$2.6 billion last year.

"The new [capex] level still allows TSMC enough room to maintain [capacity utilization] in the high 90s in a slowing demand environment in 2008 and potentially keep a lower capex profile into 2009," Randy Abrams, a semiconductor analyst at Credit Suisse, said in a report released yesterday.

Smaller rival United Microelectronics Corp (UMC, 聯電) said on Wednesday it planned to lower capital expenditure by between 22 percent and 44 percent from a year earlier. But the disappointing outlook for the first quarter and lower factory usage at 70 percent could result in a 5 percent operating loss, Abrams forecast.

Given possibly volatile end demand, inventory management would play a crucial role in determining the industry's growth.

"Inventory levels at our customers remain normal," Tsai said.

Robust demand for mobile phones and computers in the fourth quarter are expected to extend into this quarter, but demand for consumer electronics may lag behind, he said.

Revenues may fall in the range of NT$87 billion to NT$89 billion in the current quarter, Ho said. That would be a 5 percent to 7 percent drop from a record NT$93.86 billion last quarter.

"The Q4 results and guidance are in line with expectations, but comforting in the face of the macro uncertainty and competitors' weakness," Abrams said.

TSMC said gross margin might fall to between 42 percent and 44 percent this quarter from 47.8 percent last quarter, and operating margin might slide to between 32 percent and 34 percent from 39.2 percent.

Credit Suisse retained its "neutral" rating on TSMC, with a 12-month price target of NT$66, implying a 10 percent upside from TSMC's closing price of NT$59.9 yesterday.

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