The world's top contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), yesterday posted its highest quarterly earnings of the past four quarters as prices stabilized on recovering demand, but the company plans to sharply lower capital spending next year.
In response to investors concerns, TSMC chief executive Rick Tsai (蔡力行) said the company has built large capacity this year which would be able to meet customer's demand next year, coupled with further improvements in production efficiency.
"As a result, the capex [capital spending] for 2008 will be significantly less than 2007," Tsai said.
The chipmaker planned to spend US$2.6 billion on new facilities and equipment this year. Tsai didn't disclose the capex figures for next year.
During the third quarter, net income slid around 6.5 percent to NT$30.37 billion (US$934 million), or NT$1.15 per share, compared with NT$32.49 billion, or NT$1.23 a share, a year ago before demand began to dip on excess inventory.
On a quarterly basis, the results showed approximately 20 percent growth.
Looking forward, TSMC expected revenues to grow up to 5.6 percent and top NT$94 billion in the fourth quarter from the record high of NT$88.96 billion in the third quarter, mostly driven by robust demand from the computer sector, company spokeswoman Lora Ho (
"Pricing was relatively stable in the second half," Tsai said. "I think demand from the computer and handset sectors will grow further, but consumer [electronics] will weaken on seasonal factors."
Gross margin would also improve to between 46 percent and 48 percent this quarter from 45.8 percent last quarter, driven by improving chip prices and factory usage, TSMC forecast.
"The growth of gross margin is very much in line with our forecast. The semiconductor industry enjoyed high growth in the third quarter and will come down in the fourth quarter," said Randy Abrams, a semiconductor analyst with Credit Suisse.
Abrams held a positive view on TSMC's plan to cut capital spending.
"Capital discipline will drive better pricing and higher utilization," he said.
The only concern now would be the macro economy, Abrams said.
TSMC did not reveal a figure for next year's capital spending.
Eric Chen (陳慧明), a semiconductor analyst with BNP Paribas Securities, had estimated the reduction may be more than 30 percent because the chipmaker has hinted at more cautious capacity expansion.
Taking a broader view, Tsai said, "2008 will be a better year for the semiconductor industry."
Revenues for overall semiconductor industry may grow by a mid-to-high single digit percentage next year from this year and contract chipmakers may enjoy stronger growth rates, Tsai forecast.
He also raised his forecast for semiconductor industry growth this year to more than 4 percent year-on-year from a 2 percent to 3 percent estimate three months ago.
But contract chipmakers would still have weaker growth, weighed by excessive inventories.
"The impact of inventory is gone now after significant improvement in the third quarter," Tsai said.
Shares of TSMC advanced 0.49 percent to NT$61.1 yesterday.
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