TSMC Expected to Increase Capex by 20% in 2007

By Ann Steffora Mutschler -- Electronic News, 10/24/2006

Semiconductor foundry Taiwan Semiconductor Manufacturing Co. Ltd. will report its Q3 results on Thursday, and Mehdi Hosseini, senior VP at Friedman, Billings, Ramsey & Co. Inc.(FBR), an Arlington, Va.-based investment banking firm says, "Based on reported monthly sales, we already know that Q3 revenues came in at $2.45 billion (81.43 billion New Taiwanese dollars), flat quarter-over-quarter and at the high end of the guidance range of flat to down 4 percent quarter-over-quarter."

At the same time, Hosseini says that because of 2 percent depreciation in Taiwanese currency, reported Q3 revenue in U.S. dollars is estimated to be down 2 percent quarter-over-quarter.

"Net/net, [Taiwanese currency] depreciation is believed to have wiped out upside to our Q3 estimates," he continued.

"We expect below-seasonal guidance for Q4, affected by inventory work-down by TSMC's customers, although Q1 2007 wafer shipments could turn out better than seasonal, i.e., better than down 5 percent quarter-over-quarter.

The firm maintains its "Market Perform" rating until it says it has increased confidence on a bottoming in the chip unit growth rate by the Q4/Q1 2007 time frame driven by a good sell-through, which would lead to a better-than-seasonal Q1 2007 wafer start/shipment, Hosseini said.

"Q3 wafer shipments are estimated to have come in flat to up 1 percent quarter-over-quarter, with ASPs down 1 to 2 percent quarter-over-quarter. This, combined with a 6 percent quarter-over-quarter increase in available capacity -- mostly Fab 12/Fab 14 -- is expected to drive the overall utilization rate to approximately 95 percent, down from 100 percent in Q2," he explained.

Further, the firm said it expects a 5 to 10 percent decline in wafer shipments in Q4, below its prior expectations of down 3 to 5 percent quarter-over-quarter, driven by TSMC's customers working down inventories.

In terms of average selling prices (ASPs), the firm expects Q4 ASPs to decline further by 2 to 3 percent, leading to a shortfall in current estimates. The firm also noted that it is already below consensus estimates and that TSMC no longer provides wafer shipment/ASP guidance, providing only revenue guidance.

With utilization rates expected to remain in the 85 percent-plus range, the prospects of better-than-seasonal Q1 2007 wafer shipment, and increased pressure to regain the market share lost to UMC, FBR expects TSMC to increase capital expenditures by approximately 20 to 25 percent in calendar year 2007 for the 65nm capacity ramp, although it does not expect TSMC to provide any guidance in its Q3 report/conference call to this end, the firm concluded.