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TSMC, UMC fab utilisation to plummet in Q4

Strong Q3 leads to weak Q4

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The world's two largest chip foundries, TSMC and UMC, posted their latest quarterly results this week, each showing solid sequential and year-on-year growth.

However, both companies warned of harsher trading conditions ahead, on the back of big declines in fab capacity utilisation.

TSMC said sales totalling TWD69.74bn ($2.07bn) yielded a net income of TWD27.93bn ($830m) during its third quarter, which, like UMC's Q3, was completed at the end of September 2004.

The foundry's sales were up 27.1 per cent year on year and 7.5 per cent sequentially, on rising wafer shipments and higher average selling prices. Net income grew 84.1 per cent on Q3 2003 and 19.3 per cent on Q2 2004.

UMC reported record net income of TWD10.91bn ($320m) on record sales of TWD34.58bn ($1.02bn), up 60.5 per cent year on year and 18.5 per cent on the previous quarter.

However, UMC added that it expects sales to drop during Q4 before rising again in Q1 or Q2 2005. Indeed, Q4 will see capacity utilisation fall to 70 per cent, CEO Jackson Hu admitted.

Similarly, TSMC said its capacity utilisation will be down in Q4, to 85 per cent. Over the past few quarters, it has been running at over-capacity, and UMC hasn't been far behind.

In short, the inventory issues affecting the rest of the chip industry are finally filtering through to the foundries as their chip-selling customers cut back in response to weaker demand from their own customers.

TSMC didn't acknowledge the cause of such a large drop in utilisation - 20 per cent, effectively - alluding instead to "some near-term softening in customer demand", according to CFO Lora Ho.

UMC's Hu was similarly dismissive of the abrupt decline in utilisation, preferring to point out instead the company's belief that the dip will be a short-term one.

"The future of the foundry industry is bright, despite the recent slowdown in the semiconductor market," he said. "We have seen strong demand for advanced process technologies and sustained strength in outsourcing trends. We believe that these factors will be the primary drivers for a recovery for UMC within the next two quarters. We are therefore maintaining our capex level as planned." ®

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