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Intel's dismal outlook drags down local stocks

Shares in Taiwan's semiconductor industry, led by Taiwan Semicon-ductor Manufacturing Co (TSMC, 台積電), tumbled as high-tech bellwether Intel Corp's dismal third-quarter outlook fueled a tech sell-off on the local stock market yesterday.

"Intel's disappointing outlook just provides one more fresh indicator of the doldrums the semiconductor sector is in," said Wu Pei-wei (吳佩偉), a portfolio manager, who helps manage a NT$600 million fund for ABN-AMRO Asset Management in Taipei.

Shares of TSMC fell 3.27 percent to NT$44.4 on the TAIEX, taking its cue from Intel's 8-percent fall on the US stock market. Smaller local rival United Microelectronics Corp (UMC, 聯電) lost 4.42 percent to NT$21.6.

Dragged down by the decline of these tech heavyweights, the TAIEX dipped 1.57 percent, or 91.71 points, to 5761.14 points.

"The US chip giant's downward adjustment of its financial forecast further deepens the worry that the semiconductor sector could fall into a recession in 2005 after hitting its peak in the current quarter," Wu said, adding that his company keeps an "under-weight" investment rating on TSMC.

Foreign investors, which own about 20 percent of Taiwanese shares, yesterday sold a net NT$6.28 billion worth of shares, including TSMC and UMC. Last week, foreign investors bought a net of NT$20.27 billion.

The sell-off came after Intel trimmed its third-quarter revenue projection to a range between US$8.3 billion and US$8.6 billion from previous estimates of between US$8.6 billion and US$9.2 billion because of lower-than-expected demand, especially in consumer electronics.

The third-quarter gross margin percentage is expected to be approximately 58 percent, plus or minus a couple of points, as compared with the previous projection of 60 percent, Intel said in a statement on Thursday.

In its latest report, US investment house Morgan Stanley yesterday lowered its investment rating on TSMC to "equal-weight" from "over-weight," citing larger-than-expected inventory figures.

Morgan Stanley said TSMC's share price could rise to NT$48 in the next 12 to 18 months.

Charlie Chen (陳思旭), a semiconductor analyst with Grand Cathay Securities Co (大華證券), also said high inventory levels have slowed order placements on local contract chipmakers, as "we already see their salespeople are back on the road to visit customers in a bid to lure more orders."

"As demand dwindles, TSMC and UMC are under heavier price pressure, compared with the last several quarters, when their factories were fully loaded. But now they need to attract more orders to avoid utilization from falling," Chen said.

Chen predicted that TSMC's third-quarter operating income would rise by 10 percent and that earnings per share could increase to NT$1.04 per share.

UMC's operating income is expected to climb a solid 30 percent, but earnings per share could come down to NT$0.55 owing to reduced contribution from non-core business, he said.

Chen expected a flat fourth quarter for the two foundries.
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