TSMC expects record profits next year

Taiwan Semiconductor Manufacturing Company, the world's biggest contract chipmaker and a bellwether for the broader technology sector, on Wednesday said it expected to make record profits next year on the back of an improving global economy.

Morris Chang, who helped establish the company in 1987 and is also chief executive, said demand for electronic products in the fourth quarter of this year was “quite positive”, adding that momentum would probably carry through into next year. “I expect next year to be a record year” for TSMC, he said.

TSMC, which commands half of the global contract chipmaking market, makes chips for a wide variety of electronic devices. It was one of the few semiconductor companies to avoid recording a quarterly loss during the economic downturn.

On Wednesday, TSMC reported its highest quarterly net profit since the financial crisis. Net profit during the third quarter was T$30.55bn ($937.5m), which was roughly flat compared with a year ago but 25 per cent higher than the previous quarter.

Mr Chang's optimism reflects not only the speed and extent to which a recovery in certain areas of the technology sector is taking place but also TSMC's ability to consolidate its market-leading position and pull further ahead of its rivals during the downturn.

While TSMC had reduced its capital spending plans by 20 per cent to $1.5bn in April, it was the first big chip company to restore those plans and further increased spending through this year. TSMC now expects this year's capital expenditure to reach $2.7bn, compared with $1.9bn last year.

Mr Chang expects continued growth next year from all three of TSMC’s main application segments – computers, consumer electronics and communication devices – in spite of the fact that the end market for those three segments will probably be flat or slightly below last year's levels. Mr Chang said he also expects the semiconductor industry as a whole to decline by 12 per cent next year.

Japanese semiconductor companies, in particular, have struggled to compete with Taiwanese foundries in recent years. NEC Electronics is merging with Renesas, another of Japan's big chipmakers, in an effort to reduce capacity and earn more sustainable profits.

NEC, parent of NEC Electronics, yesterday cut its full-year operating profit forecast by 40 per cent to Y60bn after its chip unit said sales were lower than expected and there had been a "decline in production at the company's advanced fabrication line".