TSMC plummets on weak guidance

SELL-OFF::Concern that the chipmaker’s earnings may have peaked in the second quarter and that CEO Morris Chang is stepping down next year weighed on the stock

By Lisa Wang  /  Staff reporter

Sat, Jul 20, 2013 - Page 13

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) shares yesterday closed almost limit down as the chipmaker’s weaker-than-expected revenue guidance triggered a sell-off of the stock.

The stock price of the world’s top contract chipmaker fell 6.92 percent to NT$98.20, closing below the NT$100 mark for the first time since April 18.

The local stock took its cue from the 8.89 percent decline of the company’s American depositary receipts (ADR) overnight after the chipmaker said on Thursday that sequential revenue growth would slow to between 3.3 percent and 5.2 percent to between NT$161 billion and NT$164 billion (US$5.37 billion and US$5.47 billion) this quarter because of an increase in customers’ inventory.

Moreover, an inventory correction would result in a revenue decline in the final quarter of the year, TSMC told investors.

“TSMC has offered a conservative outlook for the third quarter,” Hua Nan Securities Investment Management Co (華南投顧) analyst Henry Miao (苗台生) said by telephone.

Miao said the share price plunge yesterday reflected investor concern that an inventory buildup in the chain might weigh heavily on TSMC’s third and fourth-quarter performance.

That could also mean that “TSMC’s profits have peaked in the second quarter,” he added.

The company’s revenue forecast fell short of Barclays analyst Andrew Lu’s (陸行之) projection of 4 to 8 percent quarterly growth, Goldman Sach analyst Donald Lu’s (呂東風) 7.38 percent increase and Nomura analyst Aaron Jeng’s (鄭明宗) 7.74 percent growth.

However, Miao said investors were overreacting to the company’s lukewarm third-quarter guidance.

“The price decline should be short term. TSMC’s leading edge in technology will lend support to the stock price,” he said.

Foreign investors sold a net of 50.67 million TSMC shares yesterday, reducing their holdings in TSMC to 77.49 percent from 77.54 percent on Thursday.

“The decline also reflects investor concern about TSMC’s future development as company CEO Morris Chang (張忠謀) plans to step down next year at a time [the company is] facing intense competition in the market,” Jih Sun Securities Investment Consulting Co (日盛投顧) analyst Kevin Chung (鐘國忠) said.

“Chang is incomparable because of his achievements over the past few years,” Chung said.

TSMC’s structure profitability has increased 3.8 percent from 2009 — when Chang returned as CEO — to last year, Chang said on Thursday. Excluding the foreign exchange rate factor, the rate of growth would be higher at 7.7 percent, he said.

The New Taiwan dollar appreciated 9.8 percent against the US dollar during the same period, he said.

Chung advised investors to be wary of TSMC stock because of a potential executive reshuffle at the chipmaker.

Next week, Chung said he expects TSMC’s share price to find support at abiout NT$95, its average price over the past year.