Hsinchu, Taiwan -- Taiwan Semiconductor Manufacturing Co. said net profits plunged in the second quarter, but that a gradual recovery is on the way thanks to pickups from personal computers and consumer products.
TSMC, the biggest pure-play silicon foundry worldwide, had profits of $8.97 million with tax credits, slumping 98% from the second quarter of 2000 and falling 96% sequentially. Excluding the credits, TSMC lost $25 million, its first quarterly loss since the company was established more than 10 years ago.
The deep slides in profits, together with falling sales in the past two months, could be a clue that the semiconductor industry is reaching the bottom. "We have hit the bottom, and our monthly sales will begin to improve mildly from July," said TSMC chairman Morris Chang. "The forecast from our customers in the PC and consumer segments has pointed to increasing demand in the second half of this year."
TSMC said chips used in PCs made up 41% of its sales in the June quarter, rising from 32% sequentially, while consumer ICs rose to 17% from 16%.
"The PC market is stabilizing. We've even seen a little improvement," said Chris Hsieh, a senior analyst with ING Baring Securities (Hong Kong) Ltd. One bit of evidence is that Asustek Computer Inc. -- Intel's biggest motherboard house in Taiwan -- is expecting to ship 590,000 pieces in the second half of July, gaining 28% from 460,000 already delivered in the first two weeks of July, Hsieh said, adding that the estimated shipment for the month of July will also rise 9% from June.
Nvidia Corp., Santa Clara, Calif. and Taipei-based Via Technologies Corp. -- among the top five customers of TSMC -- have been raising their orders to TSMC, said Hsieh.
Demand for communication ICs, though, is still poor due to pile-ups in inventories. The chips represented 24% of TSMC's second-quarter sales, sliding from 31% sequentially. "The communication sector remains pretty weak. A significant recovery wouldn't occur until the second half of 2002," said the chairman.
He reiterated his view that the third-quarter results of TSMC will improve from the second, and the fourth will also be better sequentially.
Analysts agreed, although they don't expect TSMC to gain momentum soon. "The key issue is, how fast will the company's sales pick up?" said Eric Wang, head of global semiconductor research at ABN AMRO in Taipei. "What we would see in the third quarter will be flat growth in sales and profits" from the June quarter.
TSMC's capacity utilization will be falling to "below 40%, but very close to 40%" in the third quarter, compared with 44% in the earlier quarter, said the chairman.
That's better than the guidance given by Chartered Semiconductor Manufacturing Co. of Singapore. Charter, the No.3 foundry player, said last week its run rates will probably fall to the mid-20 percent range from just 31% over the same period.
TSMC's averaging selling prices (ASP) will also be declining. "We're indeed under pressure of price erosion, but the erosion won't be too deep," said Harvey Chang, TSMC's chief financial officer.
Chang is pinning his hopes on more advanced process technologies, saying TSMC expects to ship more chips made on 0. 18-micron process in the future. The 0.18-micron chips accounted for 26% of sales in the second quarter, gaining from 18% in the first.
In the six months to June, TSMC's net profit totaled $250.9 million, meeting only 33% of its full-year target. Sales were $1.89 billion, reaching 44.2% of its 2001 forecast.
In the second quarter, TSMC had $35.3 million in investment losses, which mainly came from its U.S. unit WaferTech and other units on the island. The quarter-ago loss was $43.7 million.