Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, yesterday posted its lowest quarterly net profits in five quarters and said it expected sales and profitability to weaken further this quarter as customers reduce orders to digest inventory.
Net income shrank 0.9 percent quarter-on-quarter to NT$35.95 billion (US$1.25 billion) the lowest since the first quarter of last year.
On an annual basis, net income declined 10.8 percent from NT$40.28 billion.
To cope with sagging demand because of a weak global economic recovery, TSMC lowered its capital spending budget this year by 5 percent to US$7.4 billion. The cut was smaller than the more than 10 percent reduction some analysts were expecting.
With the slowdown, TSMC will not be able to achieve its target of 20 percent year-on-year revenue growth in US dollar terms this year, company chief financial officer Lora Ho (何麗梅) told a media briefing yesterday.
The Hsinchu-based chipmaker, however, expected the correction to be brief.
“This one [downcycle] is different from the last one,” TSMC chairman and chief executive Morris Chang (張忠謀) told an investor conference.
“This one, I think, is merely slower [economic] recovery than expected, compounded by inventory trouble ... This one is shallower and [will be] shorter than the last one,” Chang said. “We believe the inventory correction will be mostly over by the end of the third quarter.”
Randy Abrams, who tracks semiconductors at Credit Suisse, was cautious about a rebound next quarter.
“[I’ve] conservatively modeled a decline in the fourth quarter and a seasonal drop in shipments into the first quarter of next year,” Abrams said.
Because of the inventory digestion, Chang cut his annual revenue growth forecast for global contract chipmakers to 7 percent this year from the 12 percent he estimated two months ago.
“There is no [waiting] line now as our customers know they can get our wafers fast,” Chang said.
As fewer orders mean lower factory utilization and lower gross margins, TSMC said it expected gross margins to fall between 40.5 percent and 42.5 percent, from 46 percent in the second quarter and 50 percent in the third quarter of last year.
Revenues could fall by between 5.9 percent and 7.7 percent to NT$102 billion and NT$104 billion in the current quarter, from last quarter’s NT$110.51 billion, TSMC said.
The revenue decline was deeper than the 6.5 percent quarterly decrease projected by Abrams and a 2 percent to 6 percent drop forecast by Daiwa Capital Markets analyst Eric Chen (陳慧明).
Abrams nonetheless was bullish about TSMC’s competitiveness in the long term.
He advised investors to “use [the] weakness on the cyclical slowdown as an opportunity to build positions as 2012 offers the tailwind from restocking and demand drivers from smartphone growth pushing into emerging markets, Android v2 tablets, ultrabooks, and Windows 8 later in the year.”
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