TSMC Reports Best Profit in a Year, Ups Chip Gear Spending

Taiwan Semiconductor Manufacturing (TSMC) reported its best quarterly net profit and sales in a year on Thursday, and predicted even better times ahead as the impact of the global recession fades.

Third quarter sales at the world's largest contract chip maker fell 3.3 percent year on year to NT$89.94 billion (US$2.77 billion) and net profit declined slightly to NT$30.55 billion, but it was the company's best quarterly showing since the third quarter of last year.

The company also raised its spending forecast on new chip production lines for the third time this year to US$2.7 billion, from a previous forecast of $2.3 billion. TSMC's chairman said next year's spending could be even higher due to strong demand for high end chips.

"I'm an optimist. I think business next year will be good and I think business the following year will be good," said Morris Chang, chairman of TSMC, during the company's quarterly investors conference in Taipei on Thursday.

"For TSMC, we expect next year to be a record year" for both revenue and net profit, he added. The company's full-year revenue record was NT$333.16 billion in 2008, while its net profit record was NT$127.20 billion in 2006, according to historical data on the company's Web site.

The company's strong results and confidence in the future are important because TSMC is considered a technology bellwether due to the variety of products it manufactures chips for, from PCs and mobile phones to game machines and DVD players.

The chip maker forecast fourth quarter revenue at between NT$90 billion and NT$92 billion, and a gross margin as high as 48.5 percent, which would be better than the third quarter's 47.7 percent.

Global chip inventories remain low, said Chang.

Demand for high-end chips is behind TSMC's drive to expand output at its factories. The company has not been able to meet customer demand for chips made using high-end technologies for the past two quarters and foresees being unable to keep up with demand through the end of next year, despite its capital spending increases.

"In spite of our redoubled efforts to increase capacity -- and we started doing that in the June-July period -- in spite of that, we're still out of capacity," said Chang, adding, "We are out of capacity as far as the eye can see."

Chang also forecast better end-user demand for gadgets this quarter and next year.

The global PC industry shipments will grow 11 percent next year, according to TSMC research, compared to 2 percent growth this year. Handset shipments will rise 10 percent next year, the company predicts, compared to a decline of 4 percent this year, and consumer electronics will increase 8 percent next year compared to negative 1 percent this year on strong sales of set-top boxes for TVs and Blu-ray DVD players.

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