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Taiwan Semiconductor Posts Profit Drop, Cuts Market Outlook

November 01, 2011

(Updates with industry outlook cut in first paragraph.)

Oct. 27 (Bloomberg) -- Taiwan Semiconductor Manufacturing Co., the world’s largest contract maker of chips, posted its biggest profit drop in two years and cut its industry forecast as a weakening global economy hurt electronics demand.

Third-quarter net income fell 35 percent to NT$30.4 billion ($1 billion), from NT$46.9 billion a year earlier, the Hsinchu, Taiwan-based company said today. That’s in line with the NT$30.3 billion average of 17 analyst estimates compiled by Bloomberg.

Chief Executive Officer Morris Chang, 80, said the “deteriorating” market outlook prompted TSMC to cut its spending plan for the second time this year. Clients including Texas Instruments Inc. forecast sales that missed analyst estimates as consumers reduced electronics purchases. Memory- chip makers Hynix Semiconductor Inc. and Elpida Memory Inc. posted losses today as computer demand slows.

“The weakening outlook for the world economy has impacted the demand for semiconductors,” Chang, who is also TSMC’s chairman, said today at an investors’ conference in Taipei.

Industry sales will climb 1 percent in 2011, slower than the 2 percent projected in April and the 5 percent forecast in January, he said. Sales at TSMC, whose chips are used in Apple Inc. iPhones and iPads and Dell Inc. computers, will increase 9 percent in U.S.-dollar terms this year, Chang said.

Mobile Growth

Next year, global chip market sales will rise 3 percent to 5 percent, with the company’s own revenue to be “several points higher,” Chang said. TSMC benefits from growth in mobile devices, with every tablet device sold globally contributing around $7 to its revenue, he said April 28.

“TSMC has a greater share of chips in smartphones and tablets, which have held up better,” said Randy Abrams, who rates the company “outperform” at Credit Suisse Group AG in Taipei.

The chipmaker today cut its 2011 spending budget again, to $7.3 billion, and said it will be even lower next year. In July, TSMC reduced the planned expenditure to $7.4 billion from $7.8 billion.

“With the deteriorating outlook of future markets, we’re steadily lowering” our equipment spending, Chang said. Purchases next year will focus on expanding production of the company’s most-advanced chips, he said.

Weaker Profitability

Gross margin, a measure of profitability that tracks sales less the cost of goods sold, will be 43.5 percent to 45.5 percent in the fourth quarter, the lowest in more than two years. The median of five analyst estimates in a Bloomberg News survey was for gross margin of 41.7 percent.

Sales this quarter will reach NT$103 billion to NT$105 billion, the company said today, compared with the NT$103 billion average of six analyst estimates compiled by Bloomberg in the past 28 days. The analysts cut their fourth-quarter revenue forecasts by an average NT$2.4 billion in the past four weeks, according to Bloomberg data.

Third-quarter sales were NT$106.5 billion, the company reported Oct. 7. TSMC said Sept. 9 that rush orders, which would help the company surpass its sales prediction for the third quarter, weren’t likely to continue into the fourth quarter.

Global personal-computer shipments will rise 3.8 percent in 2011, less than a previous projection of 9.3 percent, Stamford, Connecticut-based Gartner Inc. said Sept. 8.

Hynix, Elpida Losses

Hynix, the world’s second-largest maker of computer-memory chips, today posted a third-quarter loss of 562.6 billion won ($500 million), wider than the 398.5 billion won average of four analyst estimates in a Bloomberg News survey. Elpida, Japan’s biggest memory-chip maker, reported a first-half net loss of 56.8 billion yen ($748 million), compared with profit of 39.9 billion yen a year earlier.

Texas Instruments and Broadcom Corp., which both design chips used in mobile phones and consumer electronics, this month forecast smaller fourth-quarter sales than analysts had estimated, citing a slowdown in global spending.

--Editors: Lena Lee, Dave McCombs

To contact the reporter on this story: Tim Culpan in Taipei at

To contact the editor responsible for this story: Michael Tighe at

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