UPDATE 2-TSMC posts best quarterly profit in over 2 years

* Q1 net profit T$33.66 bln vs T$1.56 bln year ago

* Q1 net beats Thomson Reuters f’cast of T$30.76 bln

* TSMC sees higher sales, profit margins in Q2

* Earnings likely peak in Q3; glut fears linger-analysts

* Stock up 0.31 pct before results vs almost flat market
(Recasts with more comments, details and links to data
comparisons)

By Baker Li

TAIPEI, April 27 (BestGrowthStock) – TSMC’s (2330.TW: ) biggest
quarterly profit in more than two years underscored firm tech
demand and fueled optimism that the world’s top contract
chipmaker was inching toward record earnings for the year.

Its early investment in advanced technology to make more
chips with fatter margins is helping it win more orders from
clients selling more powerful chips for new computers and
consumer products such as Apple’s (AAPL.O: ) newly launched iPad.

However, worries linger over a supply glut in late 2010 or
early 2011 after TSMC (TSM.N: ) and No.2 chip foundry UMC
(2303.TW: ) (UMC.N: ) sharply increase their capital spending to
boost capacity.

Some analysts say TSMC’s quarterly earnings are likely to
peak in the third quarter, the busiest sales season, before
they start to fall in the fourth quarter when technology demand
typically slows after the pre-Christmas buying boom.

“I don’t see any problem for the first three quarters of
this year, and you are going to see a stronger second quarter
and clients will keep ordering more chips into the third
quarter,” said Bevan Yeh, who manages T$7 billion ($224
million) of equity assets for Prudential Financial Securities
Investment Trust.

“Its capacity utilisation rate might drop a bit in the
fourth quarter but the share price might have gone higher
before we see that happen,” said Yeh, who owns TSMC and UMC
shares in his portfolio.

TSMC, which counts Texas Instruments (TXN.N: ) and Nvidia
(NVDA.O: ) among major clients, said it expected second-quarter
sales to reach T$100-102 billion from the first quarter’s
T$92.19 billion, slightly higher than market expectations.

TSMC said its second-quarter gross profit margin should be
48-50 percent, compared with the 47.9 percent in the previous
three months. It expects an operating profit margin of
36.5-38.5 percent, versus the first quarter’s 37 percent.

At its quarterly investor conference on Tuesday, TSMC
Chairman and CEO Morris Chang forecast sales in the global
semiconductor market would rise 22 percent this year, with
sales in the foundry market growing by a larger 36 percent.

OUTSOURCING

TSMC is riding high on a global outsourcing trend.

“TSMC’s revenue from IDMs dropped 42 percent in 2009 but
this year has bounced back very strongly,” said Chang, who
served as TSMC’s chief executive again in June last year as he
aims to steer the company’s ride on the chip sector’s recovery.

“Long-term trend, there is no question that IDMs will
increase their outsourcing,” he said, referring to foreign
integrated design manufacturers who own plants but are speeding
up outsourcing production to foundries to cut costs.

With Chang at the helm, TSMC allocates record capital
spending of $4.8 billion for this year to boost capacity and
widen its technology gap with smaller rivals, including UMC and
China’s SMIC (0981.HK: ).

Taiwan Semiconductor Manufacturing Co Ltd (TSMC) booked a
net profit of T$33.66 billion in January-March, its best
quarterly profit since the fourth quarter of 2007.

Ahead of the results, TSMC was expected to earn T$30.76
billion in the first quarter, helping boost its 2010 net profit
to T$128.7 billion, up 44 percent from 2009, according to a
consensus forecast by Thomson Reuters I/B/E/S.

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For data and estimate comparisons of TSMC and its rivals,
provided by StarMine, click
http://link.reuters.com/fev59j

For a graphic on TSMC’s earnings and sales, click
http://graphics.thomsonreuters.com/10/TW_TSMCQ10410.gif
http://graphics.thomsonreuters.com/10/04/TW_TSMUMC0410.gif

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

News from some big U.S. tech firms has been upbeat — Intel
(INTC.O: ) gave better-than-expected revenue and margin forecasts
for the second quarter and 2010. [ID:nSGE63D09P] Apple’s
quarterly results blew past market expectations.
[ID:nN19112324]

Sales of microchips made by 65 nanometre process
technology, or 65 billionths of a metre, accounted for 27
percent of TSMC’s total sales in the first quarter, while 14
percent of its sales were from more advanced 40-nano technology
in the same quarter.

TSMC’s Taipei-listed shares have risen about 11 percent
since the year’s low in early February on its bright earnings
outlook, helping Taiwan’s main TAIEX (.TWII: ) up 13 percent in
the same period. UMC shares were flat in the same period.

UMC is set to report its first-quarter earnings on
Wednesday.

Stock Market Research

(US$1=T$31.3)
(Editing by Ken Wills and Jean Yoon)

UPDATE 2-TSMC posts best quarterly profit in over 2 years