Taiwan Semiconductor CEO Discusses Q3 2010 - Earnings Call Transcript

Taiwan Semiconductor CEO Discusses Q3 2010 - Earnings Call Transcript
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Taiwan Semiconductor Manufacturing Company Ltd., (

TSM

)

Q3 2010 Earnings Call

October 28, 2010 08:00 am ET

Executives

Morris Chang – Chairman & Chief Executive Officer

Lora Ho – Senior Vice President, Chief Financial Officer & Spokesperson

Elizabeth Sun – Head of IR

Analysts

Medhi Hosseini -- Susquehanna International

Donald Liu -- Goldman Sachs

Randy Abrams – Credit Suisse

Steven Pelayo – HSBC

Steven Goldman

Bernard Sarvah – Daiwa

Gunther Hoeffbolder - UniCredit

Satya Kumar - Credit Suisse

Hussen Kharnaria - RBC Capital

Presentation

Operator

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Previous Statements by TSM
» Taiwan Semiconductor Manufacturing Company Ltd. Q2 2010 Earnings Call Transcript
» Taiwan Semiconductor Manufacturing Company Limited Q1 2010 Earnings Call Transcript
» Taiwan Semiconductor Mfg. Q3 2009 Earnings Call Transcript
» Taiwan Semiconductor Q2 2009 Earnings Call Transcript

Welcome to the TSMC third quarter 2010 results webcast conference call. This conference call is being webcast live via the TSMC website at www.tsmc.com and only in audio mode. (Operator instructions.) I would now like to turn the conference over to Dr. Elizabeth Sun, TSMC Head of Investor Relations.

Elizabeth Sun

Thank you. Good morning, good afternoon, and good evening everyone, welcome to TSMC’s third quarter 2010 conference call. Joining us on the call are Dr. Morris Chang, our Chairman and Chief Executive Officer, and Ms. Lora Ho, our Senior Vice President and Chief Financial Officer.

The format for today’s conference call will be as follows. First, Lora will summarize our operations in the third quarter and give you our guidance for the fourth quarter. Afterwards, TSMC’s Chairman, Dr. Chang will provide his general remarks on the business outlook and a couple of key messages. Then we will open the floor to questions.

For those participants who do not yet have a copy of the press release, you may download it from TSMC’s Website at www.tsmc.com. Please also download the summary slides in relation to today’s quarterly results presentation.

I would like to remind all listeners that following discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements.

Information as to those factors that could cause actual results to differ materially from TSMC’s forward-looking statements may be found in TSMC’s annual report on Form 20-F filed with the United States Securities and Exchange Commission on April 15, 2010, and such other documents as TSMC may file with or submit to the SEC from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Now, I’d like to turn the call over to Lora.

Lora Ho

Thank you, Elizabeth. Good morning and good evening to everyone, welcome to our third quarter conference call. To start with, I will walk you through the financial highlights in Q3, then I will give you the guidance for Q4. You may also refer to quarterly financial summary slides on our website, let me remind you that all dollar figures are in NT dollars unless otherwise stated.

TSMC’s net sales reached NT $412.3 billion, up 6.9% from Q2 and up 24.8% from the same period a year ago. Wafer shipments were 3.19 million 8 inch equivalent wafers, up 9% from the prior quarter and up 30.5% from the year ago quarter. Gross margin was 50%, representing half a percentage point increase from Q2, and a 2.3% increase from Q3 2009. Operating margin was 38.4%, down 2% points sequentially, but up 2.8% points compared with year ago quarter. EPS for Q3 reached NT$1.81, ROE was 36.5%.

Let’s now take a closer look at the income statement. Q3 gross margin was 50%, up by 0.5% points from 49.5 in Q2, mainly due to continued cost improvements. Operating expense increased NT$1.6 billion from Q2, primarily due to a higher level of development activities for our 28 nonometer and 20 nanometer technologies, and also a higher opening expense for our Fab 12, Phase V.

Non-operating income increased by NT$4.3 billion from Q2, mainly reflecting the receipts of SMIC shares from the litigation settlement. Net investment gain was NT$900 million, up NT$317 million from the prior quarter, mostly due to business improvements among certain invested companies. Net margin was 41.8%, up 3.4% points sequentially, and up 7.8% points year over year.

Now let’s take a look at our revenue by application. In Q3, demand from communications and industrial related applications continued to be strong, they grew 13% and 19% quarter over quarter, respectively. Consumer increased by 4% from last quarter, while computer declined 7% sequentially due to weaker than seasonal demand.

Overall revenue from communications, computer, consumer, and industrial applications accounted for 44%, 35%, 14% and 17% respectively, of all wafer sales in Q3. By geography, we continue to see strong adoptions in all leading edge technology. 40 nanometer and 65 nanometer continue to grow, and now represent 17% and 29% of total wafer sales, respectively. These two most leading edge technologies, combined, were 46% of all wafer sales.

The revenue mix of 90 nanometers and 0.13 micron remains stable, at 14% and 12% of total wafer sales, respectively. The aggregate revenue strong point 0.13 micron and below accounted for 72% of total wafer sales.

Now, let’s move on to the balance sheet. We ended Q3 with NT$157 billion in cash and short term investments, representing a decrease of NT$39 billion from the prior quarter, primarily due to a cash dividend payment of NT$77 billion during this quarter. Total current liabilities decreased by NT$57 billion, primarily due to the payment of cash dividend, partially offset by an increase in short term loans. Accounts receivable days remain at 39 days. Inventory turnover days were 47 days. Net fixed assets turnover was 1.3 times.

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