Taiwan Semi's Guidance Ahead of Schedule

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 foroutsourced 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 willonce again deliver record-breaking financial performance, in terms of both top-line and bottom-lineresults."

In the second quarter, management expects wafershipments to increase by close to 10% sequentially,while average selling prices should rise by a lowsingle-digit percentage point from the prior quarter.

Wafer shipments typically reflect orders that aredelivered to customers and recognized as revenue inthe quarter.

Combining roughly 10% sequential shipment growthwith a price increase of at least 1%, TSMC will likelysee in the neighborhood of 11% sequential salesgrowth. That's better than the consensus estimate,which assumes growth of around 8%. "Most earningsmodels are going to have to go up," said KevinVassily, an analyst at Susquehanna with a neutralrating on TSMC.

Heading into Friday's earnings call, the WallStreet consensus estimate stood at $1.92 billion withearnings of 14 cents.

Vassily noted that investors were tipped off thatTSMC's guidance could see some upside after rival United Microelectronics ( UMC) forecastrobust 10% wafer shipment earlier this week. He has abuy rating on UMC, which he prefers because, havinginitially lagged TSMC on advanced processtechnologies, UMC now sees more potential upside as itmoves up the ladder into chips with higher sellingprices. Vassily's firm doesn't do investment bankingfor either company.

TSMC also said Friday morning that chip demand shouldincrease strongly in the consumer segment, risemodestly for the communications market, and declinemodestly in the computer segment. The outlook more orless fits with the trend in earnings at chipmakersthis season: Wall Street was somewhat less thanimpressed with earnings and outlook from PC chip giant Intel ( INTC), but wowed by theconsensus-beating results and forecast ofcommunications chipmaker Broadcom ( BRCM).

Reflecting extremely strong chip demand, TSMCexpects to draw on up to 105% of its factory in thesecond quarter (a feat made possible by operating theplant overtime).

Also, gross profit margin should rise by a fewpercentage points compared to the first-quarter marginof 39.5%.

The company reported on Tuesday that its March quarter salesjumped 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 ashare, two pennies ahead of expectations.

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