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TSMC posts best results since downturn

The Taiwanese contract chipmaker reports its best quarterly results since the tech-sector slide began in 2001, but still warns that industry recovery is not yet under way.

Taiwan Semiconductor Manufacturing Company, the contract microchipmaker, posted its best quarterly result since a tech-sector downturn began in 2001, but cautioned that recovery was not yet under way for the industry.

TSMC said Thursday that its second-quarter net profit grew 26 percent from the same period a year ago--above market expectations--as customers launched advanced new products.

"Collectively, I don't think we can call it a recovery, at least not yet," TSMC Chairman Morris Chang told an analysts' conference. "Specific companies have done well, and I think we are one of them."

"Demand should improve in consumer and communications, and decline in computers," he said of the July-September quarter.

Although the entire microchip sector is seeing a stop-and-go recovery from a record downturn in 2001, TSMC has beaten rivals in winning high-priced orders for cutting-edge products because of better progress in shrinking circuits.

Many of TSMC's key clients launched advanced new products in the second quarter, such as graphics chip designer Nvidia's GeForce FX 5900 Ultra, a pricey chip that promises near-cinematic quality for computer games.

However, demand from consumers and corporate IT departments for the gadgets using TSMC chips is still uncertain, and some investors were more cautious on the outlook.

The second quarter was "a little better than expected. While the third quarter will see growth, it won't be as good as the second quarter," said ABN AMRO Asset Management fund manager Pedro Tsai, whose $40 million fund includes TSMC shares.

TSMC said net profit grew to $341 million ($11.73 billion Taiwanese dollars) from $273 million ($9.31 billion Taiwanese dollars) in the same period last year. That brought earnings per share to about 1.7 cents in the second quarter, against an average forecast of 1.6 cents in a Reuters poll of six analysts.

TSMC said it expected third-quarter shipments to show "mid-to-high-single-digit growth" from the second quarter, while prices would remain flat, matching market expectations of 8 percent to 10 percent quarter-on-quarter growth in revenue.

That would be a slowdown from 27 percent sequential revenue growth in the second quarter.

Production on the rise
The company's production plants will operate at more than 90 percent of capacity in the third quarter, up from 88 percent in the previous quarter, said Chang, who added that capital expenditure plans would remain unchanged at around $1.25 billion for 2003.

TSMC's stock price has largely priced in expectations of recovery. Shares in the company have gained nearly 54 percent since a pre-Iraq low in February.

Broadcom, a maker of communications chips, posted a 46 percent jump in quarterly revenue Tuesday, also numbers among TSMC's customers, along with Texas Instruments and Motorola.

"We do see some very preliminary signs of improvement in demand, some very small signs, but those signs are clear," ING Barings analyst Chris Hsieh said.

Recovery was slow because consumers and companies were no longer buying PCs and mobile phones for the first time, but looking to replace their gear with the latest model, he said.

The Netherlands' Philips Electronics is one of TSMC's largest shareholders, with a nearly 30 percent stake.

Story Copyright  © 2003 Reuters Limited.  All rights reserved.