TSMC, UMC profits rise; 4Q outlooks weaker

October 27, 2006 – Top foundry Taiwan Semiconductor Manufacturing Co. (TSMC) said 3Q06 profits rose 33% year-on-year to about $976 million, on 17% higher sales of $2.47 billion, but projected an 8%-10% decline in 4Q sales as it prepares for an industry correction. On a sequential basis, 3Q revenue was basically flat, with a 4.4% decrease in net income.

“There is an inventory correction necessary, but in the end market demand is still good,” said CEO Rick Tsai.

Wafer shipments were up 23% from a year ago to 1.89 million units, but rose only 1% from 2Q. FBR research analyst Mehdi Hosseini projects a 5%-10% decline in wafer shipments in 4Q. Communications is expected to be the weakest end-market for TSMC, with share lost at customers including Qualcomm, Freescale, and Texas Instruments, the firm noted. PC demand is partly making up the difference, though, as is demand by graphics customers, for gaming consoles as well as PCs.

Hosseini projects TSMC’s 4Q profits will slip from EPS $0.19 to $0.17, with sales of $2.29 billion. He also suggests that TSMC is likely to hike its 2007 capex budget by 15%-23% over 2006 spending, although the foundry has not finalized or published its capex budgets yet.

Meanwhile, rival foundry United Microelectronics Corp. (UMC) said its 3Q net profits nearly quadrupled from same period last year to about $258 million, on 18% higher sales of $836 million. Sequentially, sales were also flat, though net income about 42%. UMC is also seeing inventory workdowns from its customers, but shipment declines will be 2%-3% in 4Q, less severe than at TSMC, with communications actually a strong end market.

“For Q4, we do foresee some downward adjustment from certain advanced technology customers, mainly at the 0.13um technology node for the communication sector,” stated UMC chairman and CEO Jackson Hu, adding that in general, “we believe that the overall inventory situation has improved.” UMC’s guidance calls for gross margins of ~20%, down from ~24.5% in 3Q.


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