** Taiwan Semi ($11-$9.50) PE=90 Cap=130bil (18Bil float)sees pause in recovery, cuts capex
By Michael Kramer
(Recasts, adds details)
TAIPEI, July 25 (Reuters) - TSMC (Taiwan:2330.TW - News; NYSE:TSM - News), the world's largest contract chipmaker, posted weaker-than-expected quarterly profits on Thursday and surprised investors by forecasting things would get worse in the July-September period.
ADVERTISEMENT
TSMC, which had boasted the highest 2002 capital expenditure budget of all semiconductor firms except industry giant Intel (Nasdaq:INTC - News), said it would respond to worsening conditions by cutting this year's spending on new equipment to less than US$2 billion from a US$2.6 billion budget.
The weak outlook and disappointing results for the April-June quarter showed Taiwan Semiconductor Manufacturing Co, which had soared above the rest of the semiconductor industry in a powerful recovery from 2001, was beginning to run into the same turbulence hitting rivals.
"Everything was below expectations," said ING Barings analyst Chris Hsieh.
TSMC earned T$0.49 per share in the quarter, up from T$0.39 in the first three months of the year and against T$0.01 in the same period a year ago, but fell short of analyst estimates of T$0.56 per share.
But the first hint of bad news was Chairman Morris Chang's decision to personally lead TSMC's quarterly briefing to investors, after saying he would hand duty to other management after getting the company on an even keel last September.
BEARER OF BAD TIDINGS
"Now that the business climate looks like it is getting weaker, I'm back," Chang said.
Chang said he expected third-quarter shipments to drop by a single-digit percentage from the second quarter and average selling prices to fall five percent -- making it impossible for TSMC to show quarter-on-quarter revenue growth.
Merrill Lynch analyst Dan Heyler was already among the more bearish analysts when he cut TSMC to "neutral" from "buy" and halved his quarter-on-quarter sales growth forecast to five percent from 10, but the weak guidance surprised him.
"We thought there was a high risk given the capacity building in the first half," Heyler said. "Where we've been disappointed is on the (average selling price)," he said.
Chang said that falling demand combined with rising capacity would cut TSMC's capacity utilisation rate to just over 70 percent in the quarter ending in September from 85 percent in the second quarter.
The utilisation rate, which measures total production capacity versus equipment actually in use and is closely tracked by analysts, was 67 percent in the first quarter.
REBUILDING CONFIDENCE
Chang said corporate accounting scandals in the United States had dealt an unexpected blow to consumer confidence. "I think the reason why we see business conditions getting worse has a lot to do with this."
Doing his part to restore confidence, Chang said TSMC's board of directors and supervisors would form an auditing committee with independent directors, who include MIT economist Lester Thurow and former BT Group Plc (London:BT.L - News) chief executive Peter Bonfield.
TSMC's outside accountants hired to audit its books would work for the auditing committee instead of company management.
Furthermore, Chang was confident business would improve sooner rather than later.
"What we are seeing is a pause in the recovery. I strongly believe that the recovery is here," he said.
TSMC said the main declines in demand came from makers of graphics chips, personal computer chipsets, and games -- reflecting weak sales of Microsoft's (Nasdaq:MSFT - News) XBox console. TSMC manufactures the XBox's graphics chip, which is designed by key customer NVidia (NasdaqNM:NVDA - News).
Support came from mobile phones, digital cameras, wireless computer networking and other networking equipment, Chang said. Motorola (NYSE:MOT - News), the world's second-largest mobile phone maker, said in June it would cut 7,000 jobs and outsource more chip production to TSMC.
TSMC announced results after the close of trade on Thursday. The company's Taiwan-listed shares fell 0.85 percent to T$58.00, while the benchmark TAIEX (Taiwan:^TWII - News) share index gained 0.11 percent.
The Netherlands's Philips Electronics NV (Amsterdam:PHG.AS - News) is one of TSMC's largest shareholders.
(US$1=T$33.4) |
