Taiwan Semiconductor Manufacturing Company Ltd. Q2 2010 Earnings Call Transcript

Taiwan Semiconductor Manufacturing Company Ltd. Q2 2010 Earnings Call Transcript
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Taiwan Semiconductor Manufacturing Company Ltd. (TSM)

Q2 2010 Earnings Call Transcript

July 29, 2010 8:00 am ET


Elizabeth Sun – Head of IR

Lora Ho – VP, CFO & Spokesperson

Morris Chang – Chairman & CEO


Randy Abrams – Credit Suisse

Dan Heyler – Bank of America

Michael Chou – Deutsche Bank

Steven Pelayo – HSBC

Satya Kumar – Credit Suisse



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Previous Statements by TSM
» 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 second 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. Your dial-in lines are also in listen-only mode.

I would now like to turn the conference over to Dr. Elizabeth Sun, TSMC Head of Investor Relations.

Elizabeth Sun

Thank you, Leticia. Good morning and good evening everyone, welcome to TSMC’s second quarter 2010 conference call. Joining us on the call are Dr. Morris Chang, our Chairman and CEO and Ms. Lora Ho, our 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 second quarter and give you our guidance for the third quarter. Afterwards, TSMC’s Chairman, Dr. Chang will provide his general remark 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 review 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 second quarter 2010 earnings conference call. I will start today’s conference call with a highlight of the second quarter, then I will give you the outlook of our third quarter. Please refer to the quarterly financial summary slides on our Website. All dollar figures are in NT dollars, unless otherwise stated.

Customers’ demands for TSMC wafers continued to be robust in the second quarter, which translated to revenue and shipment growth across all major segments, technologies and geographic areas.

Net sales reached NT$105 million, up 13.9% from the first quarter and up 41.4% from the year ago quarter. Wafer shipments were at NT$2.93 million 8-inch equivalent wafers increased 14.9% from the prior quarter and 48.5% on the same quarter last year.

Gross margin was 49.5%, representing a 1.6 percentage point increase from the first quarter and a 3.3 percentage increase from a second quarter level.

Operating margin of 38.6% was also up 1.6 percentage points sequentially, and up 4.7 percentage points compared with second quarter ‘09. EPS for the second quarter 2010 reached NT$1.55. ROE was 31.6%.

Now let’s take a look at income statement. Second quarter gross margin was 49.5% up by 1.6 percentage point from 47.9% in the first quarter. The increase was mainly due to a higher capacity utilization rate and a continued cost improvement, partially offset by an adverse inventory valuation adjustment and an increase in raw material costs.

Operating expenses increased NT$1.4 billion from the first quarter as we accelerated the development for the most advanced technologies and expanded business scale and activities to support future growth.

Non-operating income increased by NT$450 million from first quarter primarily due to the higher disposal gain from financial assets and the absence of earthquake scrap loss in first quarter.

Net investment gain was NT$529 million up NT$352 million from the prior quarter, mostly due to the business improvement among certain invested companies. Net margin was 38.4%, up 1.9 percentage points sequentially and up 5.5 percentage point year-over-year.

On page six, let’s now turn to revenue analysis. Revenue from all major segments increased sequentially. Consumer was the strongest with 26% sequential growth. Communication, Computer and Industrial applications grew 22%, 1% and 14% respectively.

Overall, revenue from Communications, Computer, Consumer and Industrial applications accounted for 41%, 29%, 15% and 15% respectively of our wafer sales in second quarter ‘10.

Trends in Consumer demand was also seen across all technologies. Rapid ramping of 40-nanometer continued to lead growth and it reached 16% of total wafer revenue in the second quarter.

The revenue mix of 65-nanometer and 90-nanometer remained stable at 27% and 16% of total wafer sales respectively. Revenue from 0.13-micron and below represented 72% of total wafer sales for this quarter.

Now, let’s move on to the balance sheet and cash flow statement. We ended the second quarter with NT$207 billion in cash and short-term investments, representing an increase of NT$15 billion from the first quarter.

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