Transmeta (Semiconductor) (TMTA)

[DewDiligence]

Taiwan's TSMC Posts Sharply Lower 3rd Quarter Net, Outlook Grim

Tuesday October 22, 6:57 am ET
By Dan Nystedt, OF DOW JONES NEWSWIRES

TAIPEI -(Dow Jones)- Taiwan Semiconductor Manufacturing Co. , the world's largest contract chipmaker, posted sharply lower than expected net profit in the third quarter and gave a grimmer outlook for the fourth, confirming that a technology sector recovery isn't around the corner as many had hoped.

"(TSMC's) recovery will come next year in the second quarter of 2003," said Morris Chang, the chairman of the world's largest foundry that is considered a barometer for the global electronics industry due to the wide variety of products its chips are used in, including personal computers, mobile phones and digital video disc players.

The poor outlook follows a string of warnings by global peers including Intel Corp. and Microsoft Corp. in recent days during their own quarterly results.

TSMC said Tuesday net profit in the third quarter hit NT$3.16 billion (US$1= NT$34.926), more than double from a year ago - when the chip industry was in a severe downturn - but sharply lower than analysts' expectations of NT$6.1 billion.

The third quarter result was also much lower compared with the second quarter when net profit hit NT$9.3 billion.

TSMC predicted worsening business conditions for the fourth quarter, which traditionally is one of the strongest periods of the year. [Hseitz should be well on his way to retirement.]

In the final three months of this year, TSMC's shipments will slow by a percentage in the low teens as sales of chips for use in DVD drives and players, graphics chips used in products like game machines and personal computers, and those for hard disc drives will all decline, the company said.

Slower sales will likely drive average selling prices down between 2%-4% in the fourth quarter as TSMC idles nearly half of its production lines. [A small silver lining for customers such as TMTA.]

The company also further cut spending on new plants and equipment to US$1.65 billion for this year, down from an original estimate of US$2.5 billion and said capital expenditures next year would be even lower.

Chang added that the company expects to make profits during this "bottoming out period" on an after tax basis. "This is another disappointment for the market," said George Wu, analyst at Primasia Securities in Taipei.