Taiwan Semi Q3 Profit Down on Pricing, Capex

Taiwan Semiconductor Manufacturing Co. [TSMC] reported a 6.5% decline in third-quarter earnings to NT$30.37 billion ($936.2M), or NT$1.15/share (US$0.17/ADR unit), missing analyst expectations of net income of NT$31.73B. Revenues rose 8% to NT$88.96B, topping the company's internal forecast. Gross margins fell to 45.8%, compared to 49.9% last year, while operating margins declined to 36.4% (vs. 40.8%) and net margins totaled 34.1% (vs. 39.4%). TSMC's margins were negatively impacted by lower prices and higher R&D spending. "Third quarter set a record for our business in terms of revenues and wafer shipment, where all our three major market segments (communication, computer, and consumer) saw double-digit growth sequentially," commented VP and CFO Lora Ho. Ms. Ho added that Q4 demand from computer related applications is expected to grow the strongest, followed by communications, but consumer applications will decline due to seasonality. For Q4, TSMC expects revenues between NT$92B to NT$94B, with gross margins in a range of 46% to 48% and operating margins between 37% to 39%. CEO Rick Tsai said capex in 2008 will be "significantly less" than the estimated US$2.6B earmarked for 2007, since this year's budget covers "some of 2008's needs." Ordinary shares of Taiwan Semi rose 0.5% to NT$61.10 on Thursday ahead of its earnings release. TSMC ADRs lost 2.5% to $9.77 on Wednesday and were last up about 1% to $9.87 in thin pre-market trading.

Sources: Press release, Bloomberg, MarketWatch
Commentary: Taiwan Semiconductor: Uncertainty is Priced In • Taiwan Semiconductor and Micron: After Hard Hits, Potential Upside • Eight Ways to Invest in Taiwan
Stocks to watch: TSM. Competitors: UMC, SMI, CHRT. ETFs: EWT, ADRA, ADRE

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