TSMC to maintain capital spending

INCOME SOARS::To ease investors’ concerns, TSMC’s chairman and CEO said the company would generate enough cash from its operations to support investment

By Lisa Wang  /  Staff reporter

Fri, Oct 26, 2012 - Page 13

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s top contract chipmaker, yesterday said it planned to maintain its capital spending next year at a record high of US$8.3 billion, roughly the same as this year, to drive future growth after its net income rocketed to an all-time high last quarter on strong mobile chip demand.

During the July to September period, net profits soared 62.2 percent to NT$49.3 billion, from NT$30.4 billion in the corresponding period of last year.

The quarterly results exceeded TSMC’s forecast and beat the estimates of most analysts.

Daiwa Capital analyst Eric Chen (陳慧明) predicted TSMC would make NT$49 billion in net profits, while Credit Suisse analyst Randy Abrams expected the company to earn NT$46.9 billion.

“It [next year’s capital investment] will be the same ballpark figure as this year’s capital expenditure,” TSMC chairman and chief executive officer Morris Chang (張忠謀) told investors.

The US$8.3 billion in expenditure for next year is lower than the US$9 billion forecast by Abrams and US$10 billion expected by Chen.

“We believe that the strategy we optimized years ago of raising spending on R&D [research and development] and capital investment is beginning to pay off. Actually, you can already see it in the past couple years’ [financial] results,” Chang said.

“But more is yet to come. The best is yet to come,” Chang said.

The coming four-year period to 2016 would be “either growth years, or strong growth years,” Chang said.

The strong growth might be a 20 percent annual expansion, he added.

In an effort to ease investors’ concerns that huge capital investment could become a financial burden, Chang said TSMC would generate sufficient cash from its operations to support the massive capital investment.

“We still believe it can drive growth and take share from its competitors, including the incremental Apple Inc stream [of orders] for 2014, but note the trade-offs will come in cash flows, balance sheet leverage and a higher hurdle on margins,” Abrams said in a report released yesterday.

During yesterday’s conference, Chang said the company planned to maintain its cash dividend payment of NT$3 per share and would sell corporate bonds to finance the payout, about US$2.6 billion a year.

For this quarter, as he predicted in July, there would be a dip in the company’s business, but the decline would be “modest” and “better than our forecast three months ago,” Chang said.

Revenue would fall by between 8.76 percent and 7.34 percent this quarter, to range from NT$129 billion to NT$131 billion, compared with last quarter’s record level of NT$141.38 billion, TSMC said.

The forecast is slightly better than the 9 percent decline projected by Chen and a 10 percent decrease forecast by Abrams.

This quarter, revenue from advanced 28-nanometer (nm) chips would account for more than 20 percent of the company’s revenue, from 13 percent last quarter, and the figure is expected to grow to more than 30 percent next year, during which the gross margin of its 28nm chips would improve to the corporate average level from about 40 percent this quarter, Chang said.

Gross margin rose to 48.8 percent last quarter, from 48.6 percent in the second quarter and 42 percent the year before, the company’s financial statement showed.

Chang said the company expected a “modest” contraction in the first quarter of next year because of a supply-chain inventory correction. Inventory level was 13 days above seasonal average levels and would reduce to 7 days at the end of this year, he said.

Inventory is expected to return to normal level in the second quarter of next year, which would help drive a “very good rebound” for TSMC, Chang said.

TSMC’s shares fell 0.70 percent to close at NT$84.80 ahead of the release of its third-quarter results.