Foundry Taiwan Semiconductor ( TSMC), which accidentally released its first-quarter results ahead of time earlier this week, issued better-than-expected second-quarter guidance Friday morning, flagging continued strong demand for outsourced chips. TSMC shares were recently off 5 cents, or 0.5%, to $9.91. Chief financial officer Lora Ho said 2004 is shaping up to be "a year where we believe TSMC will once again deliver record-breaking financial performance, in terms of both top-line and bottom-line results." In the second quarter, management expects wafer shipments to increase by close to 10% sequentially, while average selling prices should rise by a low single-digit percentage point from the prior quarter. Wafer shipments typically reflect orders that are delivered to customers and recognized as revenue in the quarter. Combining roughly 10% sequential shipment growth with a price increase of at least 1%, TSMC will likely see in the neighborhood of 11% sequential sales growth. That's better than the consensus estimate, which assumes growth of around 8%. "Most earnings models are going to have to go up," said Kevin Vassily, an analyst at Susquehanna with a neutral rating on TSMC. Heading into Friday's earnings call, the Wall Street consensus estimate stood at $1.92 billion with earnings of 14 cents. Vassily noted that investors were tipped off that TSMC's guidance could see some upside after rival United Microelectronics ( UMC) forecast robust 10% wafer shipment earlier this week. He has a buy rating on UMC, which he prefers because, having initially lagged TSMC on advanced process technologies, UMC now sees more potential upside as it moves up the ladder into chips with higher selling prices. Vassily's firm doesn't do investment banking for either company. TSMC also said Friday morning that chip demand should increase strongly in the consumer segment, rise modestly for the communications market, and decline modestly in the computer segment. The outlook more or less fits with the trend in earnings at chipmakers this season: Wall Street was somewhat less than impressed with earnings and outlook from PC chip giant Intel ( INTC), but wowed by the consensus-beating results and forecast of communications chipmaker Broadcom ( BRCM).
Reflecting extremely strong chip demand, TSMC expects to draw on up to 105% of its factory in the second quarter (a feat made possible by operating the plant overtime). Also, gross profit margin should rise by a few percentage points compared to the first-quarter margin of 39.5%. The company reported on Tuesday that its
March quarter sales jumped 46.2% from last year's levels to $1.72 billion, about in line with expectations for $1.75 billion. Sales were down only 0.5% from the prior quarter. The results were posted three days ahead of schedule after they were accidentally posted on the Taiwan Stock Exchange's website. Net income totaled $561 million, or 14 cents a share, two pennies ahead of expectations.