Taiwan Semiconductor, Rivals May Say Profit Gains Kept Slowing
Jan. 26 (Bloomberg) -- Taiwan Semiconductor Manufacturing Co., the world's largest supplier of made-to-order chips, and its competitors may say fourth-quarter profit growth slowed or in some cases reversed as clients cut inventory and prices fell.
Taiwan Semiconductor's net income probably rose 37.5 percent to NT$22 billion ($690.7 million) based on a survey of seven analysts by Bloomberg. Growth for the company, which reports on Jan. 27, may be the lowest since the same period a year earlier, when it posted a more than fivefold gain in profit. Its closest rival United Microelectronics Corp. on Feb. 2 may report a 37 percent drop in net income to NT$4.2 billion.
Xilinx Inc. and Altera Corp., among the largest buyers of telecommunications chips from the Taiwanese suppliers, on Dec. 8 said orders from customers of the U.S. companies have slumped. Weaker demand may force Taiwan Semiconductor and its rivals to idle more of their multibillion-dollar factories this year and cut chip prices and profit, said investors such as Lotus Tsai.
``I would expect the first quarter to be the worst,'' said Tsai, a fund manager with HSBC Asset Management in Taipei, which counts Taiwan Semiconductor shares among the equivalent of $3 billion under management. Chip prices have fallen on price competition from Chinese suppliers and slumping demand for chips made with the Taiwan companies' most advanced technology, she said.
Stockpile
Xilinx's inventory in the three-month period ended Jan. 1 rose to 174 days' worth from 156 days three months earlier. Altera said its stockpile would grow to four months, the top of its ``normal range.''
Taiwan Semiconductor, which accounted for about 59 percent of total sales by the top-four made-to-order chipmakers during the fourth quarter, may have earned 83 percent of the profit.
The Hsinchu-based company's net income probably rose to 95 NT cents per share, according to the Bloomberg survey, compared with 69 NT cents a year earlier. Sales, reported earlier, rose 10.5 percent to NT$63.9 billion.
The company predicted Oct. 26 its sales would drop in the fourth quarter from the third as customers cleared inventories.
United Microelectronics will probably say net income fell to 23 cents per share from 39 cents a year earlier, when it earned NT$6.7 billion, based on the median of estimates from seven analysts surveyed by Bloomberg. Sales of the Hsinchu, Taiwan company, announced earlier, rose 19 percent to NT$28.2 billion.
Factory Use
There was about $1.5 billion worth of excess chip inventory worldwide during the fourth quarter, El Segundo, California-based researcher ISuppli Corp. said on Dec. 15. Factory use at the Asian chip suppliers will continue to fall in the first and second quarters as customers pare stockpiles, the researcher said.
ISuppli provides customers such as Intel Corp., Dell Inc., Toshiba Corp. and NEC Corp. information and forecasts on components used in electronics manufacturing.
Chartered Semiconductor Manufacturing Ltd. of Singapore, which reports financial results on Jan. 28, may post a loss, and Semiconductor Manufacturing International Corp. of Shanghai, which follows on Jan. 31, will probably post declining profit.
Chartered may say its fourth-quarter loss widened to $48 million from $43 million, according to the median estimate from three analysts polled by Bloomberg. The company, 61 percent owned by Singapore's government, has reported one annual profit since the end of 1996.
Semiconductor Manufacturing International Corp., the fourth- largest supplier, will probably say profit fell 15 percent to $7 million, or 2 cents per share, from the same period a year earlier, based on the median estimate of three analysts surveyed by Bloomberg. Sales may have doubled to $295 million.
Increased Sales
The industry's excess inventory may not be eliminated until the second quarter this year, Taiwan Semiconductor Chairman Morris Chang said on Oct. 26. He added that his company will post increased sales this year even as industry growth stalls.
Growth in global chip sales in 2005 will slow to 4.7 percent from a 24.4 percent gain in 2004, ISuppli said on Dec. 6, adding that the rate in 2006 will drop to 2 percent. Demand for mobile phones and notebook PCs, which have helped boost semiconductor sales, will slump in the next two years, according to ISuppli.
Taiwan Semiconductor has maintained its profit better than smaller rivals in the made-to-order business known as chip foundry, according to some analysts.
Profit
The company may have been the only company in the industry segment to make semiconductors with 0.11 micron gaps between transistors last year. The technology helps shrink chip sizes and lifts profit by allowing more semiconductors to be made per silicon wafer.
``Taiwan Semiconductor is currently the only foundry to offer volume production for 0.11 micron,'' Morgan Stanley & Co. analyst Sunil Gupta said in a Jan. 11 report. The manufacturing technology ``is at the sweet spot of profitability.''
Taiwan Semiconductor and its rivals face growing competition from newcomers such as Grace Semiconductor Manufacturing Corp. of China, which started production in December 2003.
Samsung Electronics Co., the world's second-biggest chipmaker, said that it plans to use part of a new plant that will start production in July to supply the made-to-order semiconductor market.