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Daiwa Securities upgrades TSMC outlook

TAIPEI -- Daiwa Securities on Wednesday upgraded its recommendation on shares of Taiwan Semiconductor Manufacturing Co. (TSMC), forecasting that the world's largest contract chip-maker will make a comeback in the second quarter from the slow season effects of the previous two quarters.

In a research note, Daiwa Securities gave TSMC shares an “outperform” rating, an upgrade from “hold,” and also raised its target price on the stock to NT$117.00 (US$3.90) from NT$107.00.

Shares of TSMC rose 1.45 percent to close at NT$105.00 on the Taiwan Stock Exchange Wednesday, on buying sparked by the gains on the tech heavy NASDAQ index overnight.

The company is expected to see a 6-percent sequential decline in its consolidated sales for the first quarter of the year, amid inventory adjustments that continued from the fourth quarter of 2013, according to Daiwa Securities.

TSMC's first-quarter wafer shipments are likely to fall 3-5 percent from the previous quarter, while its average selling price (ASP) could drop about 2 percent quarter-on quarter, the brokerage said.

However, emerging from the slow season, TSMC's consolidated sales for the second quarter are expected to grow 21 percent from the first quarter, driven by strong demand for smartphone chips, Daiwa Securities forecast.

The chip-maker's ASP for the April-June period is also likely to recover, the brokerage said.

It forecast that TSMC will get a boost from Apple Inc. orders, with sales of chips on the advanced 20 nanometer process accelerating in the second quarter.

The brokerage forecast that Apple's orders will make up about 5 percent of TSMC's total sales in 2014.

In the fourth quarter of last year, TSMC posted NT$145.81 billion in consolidated sales, down 10.3 percent from a quarter earlier on inventory adjustments.

At an investor conference Thursday, TSMC is likely to report NT$1.54 in earnings per share for the fourth quarter of last year, down from NT$2 in the previous quarter, according to Daiwa Securities.

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