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TSMC, UMC to see Q4 drop 5-15%: analysts

The China Post news staff--Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC), the island's two leading contract chip-makers, may see fourth-quarter sales drop by 5 to 15 percent from the third on inventory adjustment efforts by clients, analysts said out yesterday.

The forecast comes as the two are scheduled to announce their third-quarter results in mid-October.

Despite a slowdown in the global personal computer industry during the July-September period, it is expected TSMC will report impressive third-quarter results on strong demands for the company's cutting-edge 28-nanometer technology.

The company is set to report consolidated revenue of over NT$138 billion for the third quarter, a rise of over 7 percent quarter-on-quarter and a new high for the firm. Some foreign institutional investors even expect TSMC to post sales of NT$140.844 billion for the previous quarter, a rise of 10 percent quarter-on-quarter.

UMC, meanwhile, is also viewed with optimism by institutional investors, who expect the firm's third-quarter sales to grow 3 percent from the second, on demands from the set-top box, digital TV and controller chip segments.

As for the future, TSMC Chairman and CEO Morris Chang had already expressed his concerns for clients' inventory adjustment, which he said might last from the fourth quarter to the first quarter of next year.

Yet the inventory adjustment would only be for the short term, and a strong recovery may be expected in the second quarter of 2013, said Chang during the firm's July investors' conference.

Similarly, UMC CEO Sun Shih-wei said during the firm's last investors' conference that inventories had been rising fast and may affect UMC's fourth quarter sales.

Institutional investors agree that both TSMC and UMC will feel the impact of clients' inventory reduction efforts, which may bring down the two's fourth-quarter sales from the third. According to analysts, UMC fourth-quarter sales may fall 5 to 6 percent from the previous quarter.

As for TSMC, sales in the last quarter of the year may fall by a bigger margin, according to institutional investors. Deutsche Securities, for example, forecast TSMC fourth-quarter sales would fall 6 percent on a quarter-on-quarter basis, while Goldman Sachs predicts a decline of 5 to 10 percent.

Nomura Securities gave a more downbeat assessment, putting TSMC's fourth-quarter sales reduction at 10 to 15 percent, on weak demands for PCs and consumer electronics, as well as efforts by UMC and Semiconductor Manufacturing International Corp. to lower prices to obtain 65-nm orders.

Meanwhile, experts are closely monitoring TSMC and UMC's 28-nm production, which is now demanded by more smartphone and tablet PC chip designers including MediaTek and Qualcomm.

According to Deutsche Securities, TSMC has seen its 28-nm yield rate increase and has widened its 28-nm lead against second-tier contract manufacturers. As such the company is expected to benefit from 28-nm orders from major designers, Deutsche Securities said.

As for UMC, its 28-nm yield rate is expected at 15 to 20 percent in the final quarter, trailing far behind TSMC's 75 to 85 percent, Deutsche said. Meanwhile, due to its weaker profitability and asset-liability structure, UMC is unlikely to be able to afford the high capital expenditure it needs to develop 20-nm and 16-nm technology.

According to Deutsche, UMC's 28-nm will grow at a slower pace, with fourth-quarter 28-nm production at about 5 percent of the firm's total, or about 4 percent of TSMC's 28-nm proportion to the total.

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