TSMC continues record-breaking financial performance in Q3

TSMC's capital spending in 2011 will be higher than this year's US$5.9 billion

Taiwan Semiconductor Manufacturing Co. (TSMC) continued its record-breaking performance in the third quarter, reporting its best quarterly net profit and sales ever on Thursday. But the company forecast a drop in the fourth quarter due to the rising value of the Taiwan dollar.

Chip inventories are on the rise globally, an indication the industry may be nearing the peak of a strong growth cycle that has lasted since early 2009 when the chip industry bottomed out, said the company's chairman and CEO, Morris Chang. He forecast just 5 percent revenue growth for the global chip industry next year, much slower than his 30 percent forecast for this year.

Still, customers continue to demand cutting edge chip production from TSMC, which will keep factories humming, Chang said at the company's investors' conference in Taipei.

"Business is continuing at a brisk pace in the fourth quarter. There is still considerable demand that we cannot schedule production for," he said.

TSMC is considered a technology industry bellwether for its size and the range of devices for which it makes chips. The company is the world's largest contract chip manufacturer, making chips for global companies such as Texas Instruments, Qualcomm and Nvidia.

TSMC's net profit rose 54 percent year-on-year to NT$46.94 billion (US$1.52 billion) in the third quarter, beating its former record of NT$40.28 billion from the second quarter of this year. TSMC's sales rose 25 percent over the same time last year to NT$112.25 billion. It's old sales record was NT$105.0 billion, also in the second quarter.

The company's fourth-quarter financial results might have been able to beat the third quarter had the Taiwan dollar not increased in value against the U.S. dollar, according to Chang. TSMC's sales could reach NT$113.7 billion in the fourth quarter if the U.S. dollar/Taiwan dollar exchange rate remains the same as the third quarter, but that's not expected to happen because the U.S. dollar has weakened against most major currencies over the past several weeks. TSMC provides most of its chip manufacturing services to U.S. companies, meaning that changes in the value of the U.S. dollar can have a big impact on its financial results.

Due to the currency changes, the company predicted its fourth quarter sales will likely be between NT$107 billion and NT$109 billion, while its gross margin will be 48 percent to 50 percent, compared to 50 percent in the third quarter.

The growth rate of the global chip industry will slow next year, Chang believes, but his company plans to continue to spend massive amounts of money on new production equipment. TSMC's capital spending in 2011 will be higher than the US$5.9 billion it spent in 2010, he said.

One reason for the increased spending is that new cutting-edge chip manufacturing technologies cost more to develop. New capacity for cutting edge 28-nanometer production technology is twice as expensive as 65nm technology, he said.

TSMC will mass produce chips using 28nm technology in the fourth quarter of this year. A number of customers have already started to make plans to use 28nm technology to produce their latest chips. TSMC is already preparing 71 chip products for 28nm production, Chang said.

A nanometer is a billionth of a meter, about the size of a few atoms combined. Companies constantly strive to reduce the size of transistors and other parts on a chip in order to make them speedier and operate more efficiently.

TSMC's research plans next year include 28nm, 22nm and 14nm technologies, while exploratory work will be done on 10nm and 7nm technologies. The company will also work on specialty technologies including embedded flash, microcontrollers and image sensors.

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