HSINCHU, Taiwan -- Taiwan Semiconductor Manufacturing Co., the world's largest pure-play silicon foundry, said that net income in the three months to March totaled US$255.2 million, falling 16.6% from a year ago and plunging 60.8% from the previous quarter.
There's more tough time ahead since customers continue to struggle with clearing their inventories. "The second quarter will still be a very difficult situation for us," Chairman Morris Chang told investors and analysts. Sequentially, he forecasts that TSMC's second-quarter sales will drop 26%, wafer shipment will be about 30% less, and run rates will fall to 45%-50% from 70%.
Still, Chang reiterated his earlier view that the semiconductor market is near the bottom, adding that the third quarter will be better than the second, and the fourth will be better than the third.
The guidance from Chang, widely respected as the Godfather of Taiwan's IC industry, is based on the judgment of his experiences and customers' forecast, he said.
Some analysts, though, said the chairman is probably too optimistic. "He's trying to boost people's confidence by giving a good picture of the industry," said Barro Liao, a senior analyst at Prudential Securities Investment Trust & Co. in Taipei. "We're worried the recovery would be L-shape," rather than the broad base, U-shape one Chang mentioned.
Communications, in particular, is the area where inventories are being worked down slower than those of PC and consumer ICs. According to analysts, Santa Clara, Calif.-based Altera Corp. -- among TSMC's top 10 clients -- has said it wouldn't place any orders to TSMC before September.
"I'm not expecting a quick recovery in the communications segment over the next two or three months," said the chairman.
In the first quarter, communications made up 31% of TSMC's sales, sliding from 34% sequentially, while PC rose to 32% from 31%. Consumer fell to 16% from 19% due to seasonal factors, according to TSMC, Hsinchu, Taiwan.
The softening demand is expected to increase pricing pressure on TSMC and drag down its operating margins to about 5% in the second quarter, still making the company profitable, the chairman said. The quarterly earlier comparison figure was 23.4%.
United Microelectronics Corp., the major rival of TSMC, has also been hit. Alfred Yin, research head of BNP Paribas Peregrine Securities in Hong Kong, predicted a 27% year-on-year decline for UMC's first-quarter profits and a 68% slump on quarter. The Hsinchu-based foundry will announce its results on Monday.
Twice this year, TSMC has said that it would slash its capital expenditures. Originally, the company budgeted $3.8 billion for capex, but that was cut in February to $2.7 billion, and then last month to $2.2 billion.
One of TSMC's 300 mm wafer project has been affected. The pilot production of its Fab 14, located in the southern city of Tainan, has been delayed, Chang said. However, production is still on schedule for its Fab 12, which sits in the Hsinchu Science-based Industrial Park.
In the year's first three months, TSMC posted an investment loss of $45.5 million from affiliate companies Vanguard International Semiconductor Co., SSMC and WaferTech as well.
Geographically, the U.S. accounted for 59% of TSMC's first-quarter sales, sliding from 67% in the fourth. Asia rose to 18% from 12% and Europe jumped 10% from 8% during the same period. Japan remained flat at 13%.
TSMC will release its 2001 full-year forecast next Monday.