TSMC's Q3 profit hit by chip glut

TSMC's Q3 profit hit by chip glut

An ongoing chip glut dampened the third quarter profit at TSMC, but the company still reported record high sales.

An ongoing chip glut dampened the third quarter profit at Taiwan Semiconductor Manufacturing Co. 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 chipmaker also said it remained pessimistic on chip demand for the next few quarters, but that over the long term it believed user demand would 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 per cent year-on-year to $NT32.49 billion ($US981 million as of September 30, the last day of the period reported), but the figure was down 4.4 per cent compared to the second quarter, when it warned of a looming glut. Sales rose 17 per cent over last year to $NT82.48 billion.

Business will deteriorate in the fourth quarter for TSMC. The company forecast sales will drop to between $NT74 billion and $NT76 billion for the three months ending December 31, as the chip glut worsens. The 8 per cent to 10 per cent drop from the third quarter is worse than market analysts had expected.

"The [chip] inventory correction is in full force in the fourth quarter," president and CEO at TSMC, Rick Tsai, said. 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." This was good news for the chip industry. But TSMC's weak fourth quarter sales guidance indicated the company was lowering prices to keep rivals from nabbing orders for advanced chips.

"The fourth quarter decline is worse than we expected," he said.

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 $US2.6 billion it expects to spend by the end of this year. The company had originally forecast spending of between $US2.6 billion and $US2.8 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.

The company would announce how much it planned to spend in 2007 early next year.

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