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Taiwan SemiconductorManufacturing

(TSM) - Get Taiwan Semiconductor Manufacturing Co. Ltd. Report

rallied Thursday as the market applauded strong second-quarter revenue and earnings from the world's leading semiconductorfoundry. News of strengthening selling prices and continued demand for silicon used in consumer devicesand 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 netincome doubled from the prior year to $701 million, or15 cents per share, of American DepositaryReceipts, a penny ahead of expectations.

Revenue surged 30% to $1.944 billion, compared tothe consensus estimate for $1.933 billion. On asequential basis, sales grew 12.8%.

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Revenue growth stemmed from a 9.4% increase inwafer shipments and a 3.2% increase in wafer averageselling prices, or ASPs, helped also by a slightlyweaker U.S. dollar exchange rate.

Revenue was boosted primarily by growth in chipsused for consumer gadgets, followed by silicon forcell phones. Revenue from computer chips was flat.

The growth in ASPs marked a reversal of the priorquarter's 3.2% decline. TSM management said theincrease was driven by a better product mix andimproved pricing environment.

Second-quarter gross margin rose to 43.4% from39.5% in the prior quarter, a gain the company chalkedup to higher utilization levels, improved sellingprices and more favorable manufacturing costs.

TSM boasted a quarterly utilization rate of 106%in the period. It expects that figure to subsidesomewhat 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 FinancialOfficer Lora Ho predicted wafer shipments will show asequential increase in the mid-single digits, withselling prices flat. Gross margin will rise slightlyto about 45%.

Analysts are forecasting the company can lift EPS to16 cents a share on revenue of $2.134 billion.

TSM also said capital expenditure for the year isexpected to clock in at about $2.4 billion.