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TSMC surprises market watchers as it posts a profit

TAPEI TIMES FILE PHOTO

Profits at Taiwan Semiconductor Manufacturing Co (台積電) plunged 98 percent in the second quarter, hurt by the global slump in demand for microchips, the world's biggest contract chipmaker said yesterday.

TSMC said yesterday it had earned NT$312 million (US$9 million) in the second quarter. That's a steep drop from the NT$13.35 billion (US$384 million) it recorded in the same period last year.

Despite the lower profit figures, TSMC beat the expectations of many stock market analysts, who predicted the firm would lose money.

Company Chairman Morris Chang (張忠謀) said his company's utilization rate -- which keeps track of how many manufacturing lines are churning out customer orders -- could drop from 44 percent this quarter to "40 percent or lower" in the third quarter.

Despite the drop in orders, Chang said customers requiring TSMC's higher-technology manufacturing processes will push profits up each month through the rest of the year. He said the semiconductor industry "hit its lowest point during May and June."

Morris Chang, TSMC chairman Though the global chip market has slumped for almost a year, Taiwan Semiconductor Manufacturing Co has weathered the storm well. The company yesterday turned a second-quarter profit at a time when many other chip firms around the world are posting losses. "Sales in June were largely flat compared with May ... we think that must have been a bottom for us," TSMC Chairman Morris Chang said. But TSMC isn't out of the storm yet. Some analysts remain skeptical about whether the semiconductor industry is turning around. They say TSMC could still post a loss. Nevertheless, TSMC is pushing forward with capacity expansion projects and, unlike its competitors, has no plans to fire workers. ``Capex will stay at US$2.2 billion,'' Chang said. ``We have no plan to close any plants.''

Calvin Chang (章宇寧), a semiconductor analyst with investment bank JP Morgan Chase, said TSMC's ability to post a profit was a major victory for the company.

The fact the firm eked out a profit "is really saying that TSMC has a very, very low cost structure," the analyst said. "The break-even level -- which is a key parameter in the foundry business -- is significantly lower than its competitors'."

The semiconductor analyst said that the news from TSMC also indicates the chip industry bottomed out in the second quarter.

"The message is very clear ... we're through the bottom and we're heading up, although a very gradual up," he said.

One market watcher said US graphics chip designer Nvidia would be TSMC's savior in the third quarter.

Nvidia has designed graphics chips to be used in Microsoft's new Xbox video-game player. The US company has also created a graphics chipset from the same technology in order to bring its graphics power to desktop computers. Both products will be manufactured by TSMC.

Worldwide, TSMC is the only company of its kind still running at a profit. Its closest competitors, United Microelectronics Corp (聯電) of Taiwan and Chartered Semiconductor (特許) of Singapore are both losing money.

TSMC gained NT$1.50 yesterday to end at NT$60.50.
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