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To: Jorj X Mckie who wrote (79008)	10/20/2002 8:36:12 PM
From: stomper	Respond to of 208838

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To: Jorj X Mckie who wrote (79008)	10/21/2002 4:32:08 AM
From: 2MAR$	Respond to of 208838

Taiwan chip foundries seen warning of weak market ( but they'll buy the dip , LOL) By Michael Kramer TAIPEI, Oct 21 (Reuters) - Taiwan's TSMC <2330.TW> and UMC <2303.TW>, the world's two largest contract chipmakers, are expected to report a huge jump in quarterly profits from a year ago but warn the sector's steady recovery is grinding to a halt. Taiwan Semiconductor Manufacturing Co (TSMC) <TSM.N> and United Microelectronics Corp (UMC) <UMC.N> are likely to report third-quarter profits slipped from the bumper second quarter as demand is tapering off, analysts said. The companies are likely to warn the jarring reverse following several quarters of improving profits will get worse in the final three months of 2002, they added. Key customers of their outsourced chip manufacturing, or foundry, services placed major orders earlier this year, but have been largely selling from inventories instead of placing new orders as anticipated second-half demand has not materialised. "We don't expect to hear particularly positive guidance from foundries," Merrill Lynch analyst Dan Heyler wrote in a recent research note. On average, TSMC is expected to report earnings of T$0.26 per share when it announces third-quarter results on Tuesday, a Reuters survey of six analysts found. That would be a keen improvement from unadjusted EPS of T$0.06 in the year-ago period, but barely half of the T$0.49 TSMC made in the previous three months. Most analysts also expect TSMC to forecast a 5-10 percent sequential decline in fourth-quarter revenues at an analyst meeting following the profit announcement. Rival UMC is expected to report EPS of T$0.10 on October 30, a reversal of the T$0.30 per-share loss in the third quarter of 2001, but less than a third of the T$0.35 in the April-June quarter. Taiwan tech companies traditionally enjoy the year's peak earnings period in the second half as orders flow in for the Christmas shopping season in key markets like the United States, where 30 percent of the island's exports orders originate. AMPLE WARNING The two companies gave ample advance warning of the downturn, and their shares have already suffered heavily. TSMC shares have fallen nearly 20 percent since Chairman Morris Chang said on July 25 the company's recovery would "pause" for three to six months, a comment that sent tech shares tumbling around the world. UMC stock dropped about 18 percent over the same period, compared with 15 percent for Taiwan's benchmark TAIEX <.TWII> share index, even after the two shares led the market in a strong bounce last week. Major foundry clients like NVidia <NVDA.O>, ATI <ATY.TO>, Philips <PHG.AS>, STMicroelectronics <STM.PA>, Motorola <MOT.N> and Texas Instruments <TXN.N> have all been hit by declining share prices. The record low valuations of TSMC and UMC before last week's bounce suggest investors are having second thoughts on the sustainability of a long-term outsourcing trend in the chip industry. There is also concern TSMC, UMC, and the number three foundry, Singapore's Chartered Semiconductor <CSMF.SI> <CHRT.O>, face a crop of small competitors in Korea, Malaysia and China. "We are living in a changing world. Now it looks like the semiconductor manufacturing sector is more crowded than before, with lower ASPs (average selling prices), and the oversupply can't be resolved in a couple of days," said ING Barings analyst Chris Hsieh. Adding to the gloom, the two firms are also expected to announce further cuts in capital expenditure, a move sure to weigh heavily on companies that manufacture chipmaking equipment, like ASML <ASML.AS> and Applied Materials <AMAT.O>. TSMC, which has the semiconductor industry's highest 2002 capex budget behind Intel <INTC.O>, said in July it would cut spending to "less than US$2 billion" from US$2.6 billion. Most analysts expect the final figure to be US$1.6 billion. ((Michael Kramer, Taipei newsroom, +886 2 2508-0815 fax +886 2 2508-0204, michael.kramer@reuters.com)) REUTERS * end of story *