TSMC seen posting small hike in Q3 profit
By Michael Kramer
TAIPEI, Oct 25 (Reuters) - Taiwan Semiconductor Manufacturing Co TSMC (NYSE:TSM - news), the world's largest contract chip maker, is expected to post on Friday a small improvement in profits for the third quarter in what has been a dismal year for the industry.
A Reuters poll of five analysts yielded an average forecast of T$0.04 for TSMC's third quarter earnings per share.
That would be a modest but heartening improvement from the barely profitable second quarter's EPS of T$0.01, although well below T$1.74 for the same period of 2000 -- a year of record profits for TSMC.
However, TSMC archrival United Microelectronics Corp (UMC) (NYSE:UMC - news) is seen burrowing deeper into the red when it announces results on October 30.
UMC is expected to make a T$0.32 per-share loss against a T$0.16 loss in the April-June quarter and a T$1.31 profit in the year-ago period.
On Thursday, shares of TSMC, whose largest shareholder is Philips Electronics , gained 1.6 percent to close at T$62.50. UMC also rose 1.6 percent to T$32 against a 0.64 percent rise in Taiwan's benchmark TAIEX (^TWII - news) index.
TSMC shares are up 11.6 percent since the beginning of the year, while UMC shares are down 21.6 percent.
A LITTLE HELP FROM FRIENDS
Analysts said TSMC, the pioneer of the outsourced microchip manufacturing sector, had the right customers to see them through one of the worst years in the industry's history.
``It's a well-known fact that TSMC benefits from its PC and game machine customers, which UMC and Chartered unfortunately don't have'' said Eric Wang, global head of semiconductor research at ABN AMRO. Singapore-based Chartered Semiconductor Manufacturing is the world's number three contract chip maker.
One of TSMC's most prominent clients is NVidia (NasdaqNM:NVDA - news), whose graphics chips are used in Microsoft's (NasdaqNM:MSFT - news) XBox video game console. NVidia announced in August a 50 percent year-on-year surge in second-quarter earnings.
UMC, on the other hand, courted high-flying communications chip customers last year whose stars have fallen as capital spending on telecom networks dried up. Key UMC customer Xylinx (NasdaqNM:XLNX - news) posted a US$176 million net loss for the quarter ended September 29.
Indeed, bigger may continue to prove to be better for TSMC as the semiconductor industry struggles to escape its downturn.
``We believe TSMC's management has demonstrated a remarkable ability to manage its business through market volatility and is the best it's ever been positioned for the next upturn,'' Merrill Lynch Asia-Pacific semiconductor analyst Dan Heyler said in a research note.
DIFFICULT PATH AHEAD
While both UMC and TSMC expect the fourth quarter to be better than the third, this is partly due to seasonal year-end demand for electronics.
Most analysts expect earnings to be flat or slightly lower in the opening months of next year.
A round of earnings forecast cuts for 2002 show that last month's suicide attacks on the United States have pushed back expectations for a recovery in consumer spending.
``In terms of 'gradual recovery', I would say what it really means is 'no recovery','' said Nomura Securities' analyst Rick Hsu, referring to pre-September 11 talk of a mild upturn throughout 2002. ``It means the bottom is going to get protracted though most of the first half of next year.''
Hsu said Nomura had cut its house forecast for units of personal computers shipped in 2002 to a one percent decline from 10 percent growth after the U.S. attacks.
Investors will pay close attention to what Chairman Morris Chang says at TSCM's briefing on Friday and his view for the coming year.
``I know that in the short term the local TAIEX probably gets propelled by whatever (TSMC Chairman) Morris Chang says,'' said Bank of America analyst Tony Chen.
``But he probably will have to say a lot about the end of fourth quarter and the first quarter scenario to get people motivated,'' Chen said.
So far, UMC and TSMC have met promises made for the third quarter. TSMC's July-September revenues of T$26.94 billion were in line with Chang's repeated pledge that the third quarter would be better than the second.
UMC's third quarter revenues of T$12 billion were down 20 percent from the previous three months, in line with guidance to analysts of a 15-20 percent decline.
(US$ equals T$34.5) |
