by CIO Staff

TSMC Q3 Profit Hit by Chip Glut

Oct 26, 20063 mins
Data Center

An ongoing chip glut dampened the third-quarter profit at Taiwan Semiconductor Manufacturing (TSMC) by sending average selling prices down, but the company still reported record-high sales due to better-than-expected demand for computer-related chips.

The world’s largest contract chip maker also said it remains pessimistic on chip demand for the next few quarters, but that over the long term it believes user demand will ensure steady growth for the global technology industry. TSMC is considered a bellwether for the IT industry due to the wide variety of products for which it manufactures chips, including PCs, mobile phones, iPods and other gadgets.

Net profit rose 33 percent year on year to New Taiwanese $32.49 billion (US$981 million as of Sept. 30, the last day of the period reported), but the figure was down 4.4 percent compared to the second quarter, when it warned of a looming glut. Sales rose 17 percent over last year to NT$82.48 billion.

Business will deteriorate in the fourth quarter for TSMC. The company forecast sales will drop to between NT$74 billion and NT$76 billion for the three months ending Dec. 31, as the chip glut worsens. The 8 percent to 10 percent drop from the third quarter is worse than market analysts had expected.

“The [chip] inventory correction is in full force in the fourth quarter,” said Rick Tsai, president and chief executive officer at TSMC, during the company’s investor conference on Thursday. But “end demand still seems to be healthy,” he said.

An oversupply of chips for mobile phones and other communications devices is hurting the chip industry and will take some time to work out, while a glut in computer chips is already easing, he said.

Nomura Securities analyst Rick Hsu said, “This inventory correction is going to be a shallow one,” which is good news for the chip industry. But TSMC’s weak fourth-quarter sales guidance indicates the company is lowering prices to keep rivals from nabbing orders for advanced chips, he added. “The fourth-quarter decline is worse than we expected.”

TSMC is so confident that chip demand will bounce back soon that it is planning to spend more money on new factories and production line equipment in 2007 than the US$2.6 billion it expects to spend by the end of this year. The company had originally forecast spending of between US$2.6 billion and US$2.8 billion for this year.

“We remain positive on the mid-term to long-term semiconductor industry outlook as well as TSMC’s outlook,” Tsai said. He said the company would announce how much it plans to spend in 2007 early next year.

-Dan Nystedt, IDG News Service (Taipei Bureau)

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