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TSMC sales soar on fab contracts

Not high enough for analysts, though

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Taiwan Semiconductor Manufacturing Co(TSMC) last week announced that sales in September reached a record monthly high. However the company's stock fell by almost the maximum limit as the market had been anticipating even stronger revenue figures, analysts said.

TSMC, the world's largest producer of made to order computer chips, said revenue in September rose 168.4 per cent over the same month a year ago to NT$16.39 billion. Revenue during the first nine months of the year totted up to NT$112.4 billion, up 127.4 percent on the same period a year ago.

Analysts and investors had been expecting revenue of over NT$16.50 billion in September, so weren't quite so impressed. TSMC's share price fell by 3.15 percent to NT$107.50 on the day the figures were release.

"The results were a little lower than expected because of the VIA problem," said Peter Wang, an analyst at Fubon Securities Co.

TSMC's September sales figures may have made a new monthly record, but they beat the August figures by less than two per cent. VIA is one of TSMC's major customers. "VIA had originally been very optimistic about chipset orders, but in September, its orders to TSMC were lower than expected," said Wang.

VIA, the world's second largest chipset designer, reported last week that revenue in September rose by over 250 percent compared with the same month a year ago, but fell seven percent month on month to NT$3.53 billion. VIA is the world's second largest chipset designer.

Besides reduced orders from major customers, TSMC may also have suffered from a slightly lower capacity utilization rate and less profitable product mix, analysts said.

K C Chen, senior vice president of TSMC, said in a statement that the company's capacity utilization rate remained full. The company was continuing to expand capacity aggressively to meet demand, she said.

But while sales may still be growing as the company expands capacity, there are signs that the utilization rate may be slightly lower than in previous months.

Fabless integrated circuit design companies are finding it easier to ask for capacity allocation, said Jessica Chang, semiconductors analyst at Nomura International in Taipei. "Two to three months ago, they had difficulty asking for more capacity," she said.

Their ability to obtain capacity allocation suggests a fall in TSMC's utilization rate. "A small decline in the utilization ratio might affect the degree by which TSMC is able to ask for a higher average selling price," said Chang. "The company says it's been raising its average selling price, but I think they've been under pressure not to increase the price," she said.

TSMC's revenues may also be suffering from a less profitable product mix. "Some communications companies pulled out some orders from TSMC," said Andrew Teng, semiconductors analyst at Taiwan International Securities Corp. TSMC said in mid-August that Motorola Inc, the world's no.2 cellular phone maker, had scaled back estimates of potential future order volumes because of lower than expected demand.

Communications chips have higher gross profit margins than PC chips, said Teng. As a result, revenue growth will rise more slowly. "Even though TSMC is running at 100 percent capacity, the product mix has changed, which pulls down the gross margin," said Teng.

Still, the company's fundamentals remain strong, analysts said, and its stock was suffering from the bearish market sentiment.

"We formally announced our annual sales and profits forecast on Sept 14," said TSMC's Tzeng. "The forecast so far is expected to be reachable." The company predicted revenue for the year of NT$164.87 billion, up over 125 per cent compared with revenue last year.

Revenue so far this year amounts to 69 per cent of that figure. ®

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