Analyst raises forecast for foundry rivals TSMC, UMC

"We are raising our 2H03 estimates to reflect an improved revenue and gross-margin outlook for TSMC," wrote Michael McConnell, an analyst with Pacific Crest Securities. "We believe TSMC's baseband chip set customer forecasts remain strong for the remainder of the year, with wireline and consumer customers indicating more moderate growth, and PC customers flat," McConnell said. "Nvida's decision to manufacturer its NV36 graphics processor at IBM is one reason for the flat PC outlook at TSMC."

TSMC's fab-util ization rate exceeds 90 percent, while its 130-nm yields are over 70 percent for most customer designs, McConnell said.

The foundry giant was originally expected to earn $0.10 a share on sales of $1.54 billion in the third quarter. Now, the company is expected to earn $0.11 a share on sales of $1.583 billion in the quarter, according to the analyst. In the second quarter of this year, the company earned $0.08 on sales of $1.437 billion.

While TSMC has firm bookings for only one third of the fourth quarter, company sales are expected to jump 3 percent in that period over the third quarter. TSMC was originally expected to earn $0.11 on sales of $1.619 billion in the fourth quarter. Now, it is expected to earn $0.12 on sales of $1.634 billion in the quarter, McConnell said.

Like TSMC, UMC is also seeing strong demand from its wireless foundry customers. As a result, UMC's sales are expected to decline by a more moderate 2 percent in the third quarter, according to the report.

UMC was originall y expected to earn $0.02 a share on sales of $599.5 million. Now, the company is expected to earn $0.02 a share on sales of $614 million in the third quarter. In the second quarter of 2003, the company earned $0.03 on sales of $627.2 million.

The company is expected to see a 6 percent jump in fourth-quarter sales thanks to orders from consumer chip maker Mediatek. UMC was originally expected to earn $0.03 a share on sales of $628.4 million in the fourth quarter. Now, the company is expected to earn $0.03 a share on sales of $650.1 million in the quarter, the report said.