More Ominous News for Semis

| About: Taiwan Semiconductor (TSM)

Taiwan Semiconductor (NYSE:TSM) today said that its Q4 revenues will be below the guidance the company provided a month ago due to “a reduction of wafer shipments resulting from continuing weakness in global economic conditions.” The contract chip manufacturer now sees Q4 revenue of between NT$63 billion and NT$65 billion, down from its previous forecast of NT$69 billion and NT$71 billion.

Taiwan Semi now sees Q4 gross margin of 30%-32%, and operating margin of 17%-19%, in each case dropping the range by four percentage points.

The new guidance implies revenues will be down 29% sequentially and 30% year over year. Given the company’s leading role as a producer of chips for fabless semiconductor companies, the warning is not very good news for the broader chip sector.

In early trading, Taiwan Semi is down 53 cents, or 7.4%, to $6.62.

Worldwide semiconductor sales fell 2.4% in October to $22.5 billion from $23 billion a year ago, according to the Semiconductor Industry Association. October’s sales were down 2.1% from September. Ex-memory products, sales were up 3.8% from a year ago, but down 1.4% sequentially.

For the first 10 months of the year, sales were $216 billion, up 2.6% from a year earlier.

DRAM sales in October were down 14% year over year, while NAND flash memory sales were down by nearly 41%.

“The slowdown in worldwide semiconductor sales that became evident in September continued in October,” SIA President George Scalise said in a statement. “The worldwide financial turmoil is expected to continue to impact demand for semiconductors as we enter 2009. For 2009 PC unit shipments are forecast to decline by 5% and cell phone unit shipments are projected to be down by 9%. PCs and cell phones account for approximately 60% of total demand for semiconductors.”