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TSMC’s net income up 50 percent

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest chipmaker on a contract basis, said yesterday that net income had increased almost 50 percent after demand recovered from an inventory-driven slowdown.

TSMC said messages from customers helped it get a clearer picture of the second quarter.

“We are seeing a steady increase in demand,” chief executive Rick Tsai (蔡力行) told an investor’s conference, adding that demand mostly came from the consumer segment.

Net income grew 49.4 percent to NT$28.1 billion (US$924 million), or NT$1.1 per share in the first quarter after deducting employee bonuses, compared with NT$18.8 billion, or NT$0.71 a share, the previous year.

“The first quarter was a good quarter. The results were in line with [our] goals,” chief financial officer Lora Ho (何麗梅) said.

She said that the results were achieved despite the faster-than-expected appreciation of the New Taiwan dollar against the US dollar and a lower gross margin resulting from employee profit sharing.

Starting this year and to comply with new accounting rules that recognize employee bonuses as spending, TSMC is allocating 15 percent of its quarterly earnings for employee profit-sharing.

PROSPECTS

Looking ahead, Tsai said: “After talking with our customers and ascertaining our billing situation, the outlook for the second quarter appears quite good.”

Revenues are expected to remain flat, or to increase by 2 percent to between NT$87 billion and NT$89 billion in the current quarter, from NT$87.5 billion in the January to March quarter, the company said.

Aside from fluctuations in foreign exchange rates, TSMC revenues would grow 4 percent to 6 percent quarter-on-quarter, Tsai said.

“Both [first quarter results and the outlook for the second quarter] are very impressive. Margin is increasing,” said Steven Pelayo, a senior analyst at HSBC, on the sideline of an investor conference.

Gross margin may remain unchanged or improve mildly to between 43 percent and 45 percent this quarter, with a possible 1.7 percentage point erosion resulting from a stronger NT dollar, from 43.7 percent last quarter, the chipmaker said.

DOLLAR FACTOR

Pelayo said that revenue would either be flat or drop slightly, but that once the depreciation of the US dollar was factored in, the tendency would likely remain positive.

“I think [TSMC] is really weathering the currency pressures … [and doing] better than expected,” Pelayo said.

He said, however, that rising inflation in some areas could have a negative impact on demand for consumer electronics.

Echoing comments by analysts such as Citigroup’s Andrew Lu (陸行之), Pelayo said he would keep an eye on inventory levels for TSMC’s major markets, including handset chip suppliers Texas Instruments Inc and Qualcomm Inc, which have accumulated substantial stockpiles.

Pelayo had an “outperform” rating on TSMC, with a target price of NT$72 for the next 12 months, an 11 percent upside from the stock’s closing price of NT$64.7 yesterday.

Separately, Tsai said the company would not rule out the possibility of tapping into the light-emitting diode (LED) industry in search of new growth.

“If we see applications that have opportunities to drive revenue and profit growth by leveraging our current resources, then TSMC will look into it seriously,” Tsai said.

The LED industry is “one of the possible areas” for expansion, he said.


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