TSMC Q2 Results Shine, but Says Business Is Slowing

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Taiwan Semiconductor Manufacturing (TSMC) on Thursday reported a net profit for the second quarter that beat expectations, but the company noted worsening economic conditions are taking a toll on the chip industry.

The world's largest contract chip maker reported its net profit rose 13 percent year-on-year to NT$28.77 billion (US$942.3 million) in the three month period ending June 30. Revenue increased nearly 18 percent to NT$88.14 billion.

The company credited its strong performance on orders for high end chips, and also said its cost cutting measures helped stem rising energy and materials prices. Chips made using advanced production technology of 130-nanometers and smaller, which the company can charge more fore, accounted for 63 percent of chip sales, TSMC said.

But a worsening global economy will start taking an increasing toll on the global chip industry, executives warned.

"We expect our business to turn weaker as we exit the third quarter," said Rick Tsai, CEO of TSMC.

He noted that TSMC's revenue guidance for the third quarter is worse than normal, and narrowed TSMC's forecast for 2008 global chip industry revenue growth to 4 percent from a range of 4 percent to 6 percent previously.

The problem isn't just in the U.S., where TSMC gains most of its orders. China's market has been slower all year, Tsai said.

"All [chip] foundries are seeing a muted third quarter," said Bhavin Shah, analyst at investment bank JP Morgan.

The warning from TSMC raises concerns about the global IT industry. The company is considered an bellwether for the global technology industry because it produces chips for such a wide range of products, including digital cameras, music players, mobile phones and PCs. Since chips are the building blocks of all electronics products, a slowdown in the sector will reverberate across the entire industry.

TSMC forecast its revenue in the third quarter will be between NT$90 billion and NT$92 billion. The figure is up quarter-over-quarter by about 5 percent in U.S. dollar terms, but normally TSMC's revenue increases about 10 percent in the third quarter, compared to the second.

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