Shares of Taiwan Semiconductor Manufacturing ( TSM) rallied Thursday as the market applauded strong second-quarter revenue and earnings from the world's leading semiconductor foundry. News of strengthening selling prices and continued demand for silicon used in consumer devices and handsets roused chip investors out of their recent bearishness. In addition, Chief Executive Officer Morris Chang said he expects the semiconductor industry to grow 8% next year, though he expects his own company to surpass average industry growth. That 8% estimate stands above the June forecast of the Semiconductor Industry Association, which called for 2005 revenue growth of just over 4%. TSM stock was recently up 18 cents, or 2.7%, to $6.95. Early Thursday, TSM reported second-quarter net income doubled from the prior year to $701 million, or 15 cents per share, of American Depositary Receipts, a penny ahead of expectations. Revenue surged 30% to $1.944 billion, compared to the consensus estimate for $1.933 billion. On a sequential basis, sales grew 12.8%. Revenue growth stemmed from a 9.4% increase in wafer shipments and a 3.2% increase in wafer average selling prices, or ASPs, helped also by a slightly weaker U.S. dollar exchange rate. Revenue was boosted primarily by growth in chips used for consumer gadgets, followed by silicon for cell phones. Revenue from computer chips was flat. The growth in ASPs marked a reversal of the prior quarter's 3.2% decline. TSM management said the increase was driven by a better product mix and improved pricing environment. Second-quarter gross margin rose to 43.4% from 39.5% in the prior quarter, a gain the company chalked up to higher utilization levels, improved selling prices and more favorable manufacturing costs. TSM boasted a quarterly utilization rate of 106% in the period. It expects that figure to subside somewhat but remain above 100% in the third quarter. Foundries are able to increase capacity (which is a subjective engineering estimate in itself) beyond 100% by "balancing the loadings," or carefully arranging orders in the most efficient way possible, explained Charles Byers, director of worldwide brand management for TSM.
In the third quarter now under way, Chief Financial Officer Lora Ho predicted wafer shipments will show a sequential increase in the mid-single digits, with selling prices flat. Gross margin will rise slightly to about 45%. Analysts are forecasting the company can lift EPS to 16 cents a share on revenue of $2.134 billion. TSM also said capital expenditure for the year is expected to clock in at about $2.4 billion.