TSM ($15)P/E 17 Taiwan Semiconductor Ekes Out
Profit by Taking Large Tax Credit
By Terho Uimonen
Staff Reporter of The Wall Street Journal
TAIPEI, Taiwan -- Taiwan Semiconductor Manufacturing Co., the world's largest contract chip maker, posted a narrow second-quarter profit on lower revenue, by booking a 1.18 billion New Taiwan dollars (US$33.9 million) tax credit to offset investment losses at its affiliates.
The company was able to achieve a small operating profit at a time when other major chip suppliers are posting losses, mainly due to orders from a handful of large clients and less exposure to chips for communications equipment, whose sales have lagged.
Executives at TSMC gave a mixed outlook for the rest of the year, underscoring how a prolonged slump in the broader semiconductor sector continues to take its toll on chip makers.
On the downside, the company's plants are expected to operate below 40% of capacity in the third quarter, down from 44% in the second quarter. Sales are expected to remain flat. Still, operating income is projected to improve due to a 50% volume increase in shipments of high-end products, said Morris Chang, the chairman of TSMC.
"I still believe the third quarter will be better than the second quarter, and the fourth quarter better than the third," said Mr. Chang.
The company said net profit for the quarter that ended June 30 fell 98% to NT$312 million ($8.91 million), from NT$13.35 billion in the same period a year ago. Revenue slumped to NT$26.30 billion, down 17% from NT$31.81 billion in last year's second quarter. Despite posting operating income of NT$284 million, investment losses at affiliates led to a pretax loss of NT$869 million.
Yet TSMC offset that loss by booking a tax credit of NT$1.18 billion, compared to taking a small tax credit of NT$238 million in the same quarter last year.
As a result of the larger tax credit, TSMC eked out one New Taiwan cent in earnings per share, compared with 92 cents in earnings per share in the same period a year earlier. Ahead of the earnings report, TSMC's shares closed at NT$60.50 on Thursday, up NT$1.50, or 2.5% on the day.
"Booking the NT$1.2 billion tax credit was pivotal in making the quarter a profitable one, which could be crucial to market sentiment," said Calvin Chang, a Taipei-based semiconductor analyst at J.P. Morgan Chase.
Taiwan's government has long supported the island's technology companies with tax rebates on capital investment in high-end manufacturing equipment as well as research and development expenses. Companies are allowed to book such tax credits within a five-year period.
TSMC had around NT$14 billion worth of tax credits on its balance sheet at the end of last year, according to one analyst.
Although the tax-credit system has been criticized as akin to a subsidy, the government has shown no signs of ending the practice.
Taiwan's long-awaited entry into the World Trade Organization is not expected to affect the government's policy on tax credits to chip makers, said J.H. Tzeng, a spokesman for TSMC. |
