TSMC Sales, Profit Hit All-time Highs in Second Quarter

Chip giant Taiwan Semiconductor Manufacturing Co. (TSMC) reported its best quarterly net profit and sales ever in the second quarter, and predicted the third quarter will be even better.

The company's strong performance highlights the speed at which the chip industry is recovering from the lows reached last year as the global recession took hold. It also follows stellar results from other chip giants. Intel, the world's biggest chip maker, also reported a record-breaking second quarter as revenue, gross margin, operating profit and earnings per share all hit new highs.

TSMC is considered a technology industry bellwether for its size and the range of devices for which it makes chips. TSMC is the world's largest contract chip maker, manufacturing chips for global companies such as Texas Instruments, Qualcomm and Nvidia.

TSMC's net profit reached NT$40.28 billion (US$1.25 billion), up 65 percent over the same period last year and beating its former record of NT$34.49 billion from the fourth quarter of 2007. TSMC's sales rose 41 percent to NT$105.0 billion, another record. Its old sales record was NT$93.86 billion, also from the fourth quarter of 2007.

Demand for TSMC's chip manufacturing services was brisk globally, but also picked up in some new areas, including Japan. That country has been slow to outsource chip manufacturing to companies such as TSMC, but appears to have recently started to move in that direction.

"Last year I told you that mainland Chinese sales had overtaken our Japanese sales. This year, I'm happily surprised that Japanese sales have grown enormously. This year, in spite of China's continued high growth, Japan's growth makes it a still bigger area than China in our sales," said Morris Chang, chairman and CEO of TSMC, at its investors' conference in Taipei.

Chang said TSMC's view of the chip industry overall has improved so that he now forecasts 30 percent year-on-year revenue growth for the industry, and 40 percent growth for the contract chip industry.

TSMC also raised its forecast for spending on new factories and chip equipment this year to US$5.8 billion, from $4.8 billion previously.

Some analysts voiced concern over the heavy spending, particularly in light of increased spending by other chip makers, such as Samsung Electronics and TSMC's top rival, GlobalFoundries. Ambitious spending plans sometimes result in a chip glut, sending prices down.

Chang brushed away the concerns, saying that despite TSMC's speed in increasing spending and factory capacity so far this year, it has not been able to meet the needs of its customers. The company spent $3.1 billion in the first half of this year.

TSMC said its revenue will be even better in the third quarter, rising to between NT$109 billion and NT$111 billion, which will break its second quarter record. The company appears to be on target to fulfill a promise made by its chairman last year, that 2010 will be a record year for TSMC in terms of both sales and profit.

Chang also said TSMC plans to roll out chips made using 20-nanometer process technology in the second half of 2012. The company's most advanced chip technology currently is 28nm, which is ready for production. Chang said there will likely be no products in volume production this year using its 28nm technology.

He also said a partnership with Intel over its Atom processing cores remains on hold, and that there has been no news on that partnership for the past six months. Intel talked up its own plans to make system-on-chip products (SoCs) containing its Atom processing cores at the Intel Developer Forum in Beijing earlier this year. Previously, it appeared Intel would partner with TSMC on the venture.

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