TSMC mixed results mirror uncertain outlook

TSMC mixed results mirror uncertain outlook
By Mike Clendenin, EE Times
January 28, 2003 (7:31 a.m. EST)
URL: http://www.eetimes.com/story/OEG20030127S0060

TAIPEI, Taiwan — Foundry leader Taiwan Semiconductor Manufacturing Co. ended 2002 in the black, with annual profit up 49 percent, but the company remains somewhat cautious about the outlook for early 2003 after sales increased only marginally in the fourth quarter and quarterly profit remained squeezed.

The foundry also said Tuesday that it would trim capital spending in 2003 to a range of $1 billion to $1.5 billion, a level not seen since 1999. The guarded strategy follows a mixed fourth quarter, during which sales increased 3.3 percent sequentially to $1.18 billion (NT$41 billion), but profits took a hit, declining 19 percent.

Utilization was 61 percent in the fourth quarter, compared to 79 percent in the third quarter. TSMC expects things to get slightly worse in this quarter, with a utilization rate of 60 percent. Year-on-year, TSMC's quarterly sales grew 24 percent yet profits decreased 43 percent, illustrating the strain of working in a capital-intensive business when demand is relatively moderate.

"It's not a function of execution or technology (for TSMC) -- they have continued to do very well there," said Dan Heyler of Merrill Lynch. "It's a function really of the end market. ... Technology upgrades occur in waves and on a broader basis we think the next wave will be in 2004 and 2005. What's your likely to see on IT spending (until then) is more subsistence capex, bottoming out this year."

If a silver lining is to be had, it is most likely in the foundry's ratio of orders to sales. The company said that ratio has swung in favor of taking in more orders and reiterated its forecast of revenue growth starting in the second quarter.

Despite its reduced capex budget, the foundry intends to increase advanced capacity (0.18-micron and below) to more than 45 percent of capacity by year's end, up from 38 percent in 2002.

As he has done in the past, TSMC Chairman Morris Chang predicted that his company's growth would outpace tha t of the general semiconductor industry. Chang also noted that his company would not start producing wafers at its China operations until late 2004 at the earliest. TSMC is currently winding its way through a Taiwan government approval process that will determine whether it can invest in mainland China. It recently received preliminary approval and is expected to win final approval.