Chang bullish after record TSMC results

Taiwan Semiconductor Manufact-uring Co (TSMC, 台積電), the world's largest manufacturer of chips to order, reported record quarterly sales yesterday, with sales in the first nine months of the year already higher than the company's previous 12-month record set in 2000.

"Our performance has achieved a historical record," TSMC chairman Morris Chang (張忠謀) told investors yesterday. "Our income before tax in our previous record year 2000 was NT$63.8 billion, or US$1.61 billion. We have already passed that figure in the third quarter of 2003 with US$1.67 billion."

In the three months to Sept. 30, TSMC's manufacturing facilities were operating at 98 percent of capacity, compared with 88 percent in the previous quarter. The company plans to expand capacity this quarter to meet rising orders, Chang said.

Profits in the third quarter also hit a three-year high, increasing almost fivefold to NT$15.17 billion from NT$3.16 billion in the same period last year.

"Net income is the highest it has been since the first quarter of 2001," TSMC chief financial officer Lora Ho (何麗梅) said. Profits did not reach a record mainly because taxes have increased, Chang said.

The US$150 billion semiconductor industry is finally returning to growth for the first time since the boom year of 2000. US-based research firm Gartner Inc last month forecast growth of around 11 percent in the global industry this year. But Chang was more bullish, predicting a figure as high as 14 percent.

Analysts welcomed the results and drew comfort from Chang's optimism.

"Sales growth is very positive at TSMC and Morris Chang seems very bullish on the prospects for long-term growth in the future," said Chris Hsieh (謝偉民), a chip-industry analyst with ING Securities Ltd in Taipei. "What is probably more important is that it seems like business confidence is recovering."

Sales at other chip giants are also showing signs of recovery. Earlier this month, the world's largest computer chip company, Intel Corp, reported third quarter profits of US$1.7 billion, more than double the US$686 million earned in the same quarter last year.

"A recovery is already underway," said Alfred Ying (應宗傑), an analyst at BNP Paribas in Taipei. "There will be a gradual recovery this year and an even stronger one next year."

But TSMC has held back on shelling out for new chipmaking equipment this year after orders did not immediately follow its last major equipment spending spree in 2000. The company plans to spend US$1.2 billion on new equipment this year, lower than the US$1.5 billion expected by analysts.

"We are not ready to release next year's capital expenditure estimates yet, but I am sure it will be significantly greater than this year," Chang said.

Analysts said Chang's conservative tone on capital expenditure was a good thing.

"Chang had to be sure of the market. If he expands too fast, orders might not come in at the same pace," Ying said. "An increase in capital expenditure in 2004 is an indication of TSMC's belief in the good prospects for growth in the foundry industry next year."

Chang predicted that shipments at TSMC would grow between 5 percent and 9 percent in the remaining three months of the year.