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Morgan Stanley expresses concern about TSMC shares

TAIPEI, Taiwan -- Morgan Stanley expressed concern Thursday about the share movement of Taiwan Semiconductor Manufacturing Co. (TSMC,台積電) on expectations that the world's largest contract chip maker will lag behind its major rival in the advanced 16 nanometer (nm) process.

In an investor conference held a day earlier, TSMC Chairman Morris Chang (張忠謀) said his company's market share in 16nm technology is likely to lag behind that of its rival in 2015, but he said he has faith that the disadvantage will be reversed with a higher market share in 2016.

Chang's comments prompted many investors who had built up strong gains in TSMC shares in recent sessions to unload the stock Thursday as they tended to conclude that Chang's remarks indicated that Qualcomm Inc., one of the chip maker's major clients, will shift its orders to Samsung Electronis Co. of South Korea.

Shares of TSMC fell 4.60 percent to close at NT$124.50 (US$4.15), with 136.20 million shares changing hands, while the weighted index on the Taiwan Stock Exchange ended down 0.8 percent at 9,408.24 points.

Samsung Phantom Lingers

Morgan Stanley said fears over an order loss to Samsung are expected to continue to depress TSMC shares in the near future, so it maintained an “equal weight” recommendation on the stock.

The brokerage said the equal weight rating also came on expectations that as mid-range and low-cost smartphones have gained popularity in the global market, the high-end chip market TSMC dominates could suffer from saturation.

It added that inventories in the semiconductor business in the second half of this year could be on the rise, so investors have been advised to adopt a cautious attitude toward TSMC's outlook.

However, as TSMC reported record highs in net profit and sales for the second quarter of this year, Morgan Stanley has raised its forecast for the chip maker's earnings per share (EPS) for 2014 to NT$9.23 from NT$8.13.

During the April-June period, TSMC posted NT$NT$59.70 billion in net profit, up 24.7 percent from a quarter earlier, and its second- quarter EPS stood at NT$2.3, compared with NT$1.85 in EPS recorded in the first quarter.

TSMC's second-quarter consolidated sales rose 23.5 percent from a quarter earlier to NT$183.02 billion, beating an earlier estimate of NT$180 billion-NT$183 billion.

While Morgan Stanley left an equal weight rating on TSMC shares unchanged, the brokerage revised upward a target price on TSMC shares to NT$118 from NT$104.

However, the target price was still lower than a range of NT$145 and NT$170 several other foreign institutional investors have issued.

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