June 25, 2008 – TSMC’s 2Q08 revenue should be at the high end of guidance (roughly US$2.86-$2.92B, 0-2% vs. 1Q08), and 3Q is looking brighter, but for now the upswing isn’t enough to increase profitability, according to an analysts from FBR Research.

Based on April and May sales and an anticipated 3% M-M increase in quarter-ending June, plus factoring in a ~3% currency appreciation for NT$, analysts Mehdi Hosseini and Rafi Hassan project a 5% Q-Q increase in sales in 3Q. Shipments are strong to customers in communications (Altera, Broadcom, Cambridge Silicon Radio, Freescale, Texas Instruments), PCs (AMD/ATI), and gaming consoles (Microsoft), they write in a research note.

3Q demand is seen softer than expected, with shipments downgraded to -20% Q-Q vs. -15% (mostly due to pullbacks from customers Nvidia and Qualcomm), though sales could still beat estimates with strength from other customers including ADI, AMD/ATI, CSR, Himax, Intel/Spansion (for NOR flash), Marvell, and TI.

The analysts still say profit margin increases will be “limited,” with gross/operating margins peaking at 44%/34%, though higher wafer shipment swill help EPS. Even if industry/foundry growth exceeds 10%, lingering macroeconomic uncertainties make it unlikely that gross margins will stretch to the high-40% range achieved in 2006. “We find it premature to expect well over 10% top-line growth in CY09,” they write.

Even though TSMC is still running at >95% utilization rates, the company won’t back off plans to charge higher prices. “The best that TSM can achieve, in our view, is to stabilize the blended ASPs,” they wrote.