TAIPEI: Two of Taiwan's semiconductor giants are seeing sunnier days ahead with prospects of increased earnings in one case and a return to profitability in another, on the strength of growing demand.

Taiwan Semiconductor Manufacturing Company (TSMC) expects to turn in second quarter results showing the company's largest profit in three quarters. Money-losing rival UMC is expected to show a profit after losing money for three quarters.

Sales of chips used in personal computers, mobile phones and flat-screen TVs could gather speed, partly on back-to-school demand into the third quarter, while TSMC may expand its already extensive share of the $20 billion chip foundry market.

The world's two biggest foundries look to two principal sources for sales: fabless chip designers and chipmakers that are outsourcing to cut costs. Both companies have been buoyed by the mainland's massive stimulus package early this year. The mainland initiatives have fuelled consumer spending on electronic devices.

Analysts say cash-rich companies such as TSMC usually have the ability to spend more on new, more cost-effective production technologies, while second-tier rivals, including Singapore-based Chartered Semiconductor and the mainland's SMIC have limited research spending.

"TSMC has been in the driver's seat in migrating to advanced technologies and that's why I always have confidence in its business," said Andrew Deng, an assistant vice-president at Taiwan International Securities. "In terms of orders, visibility is clear for the third quarter for the overall foundry market."

TSMC is expected to ship more graphics chips manufactured under its new 40-nanometre process technology to clients, including Nvidia and AMD, during the third quarter, according to Deutsche Bank.

News from some big semiconductor makers in the United States has been upbeat - Intel's quarterly results and outlook exceeded analysts' forecasts last week on improved consumer demand for PCs, while Texas Instruments (TI) also posted a stronger-than-expected profit and outlook on Monday.

TSMC is expected to report a net profit of NT$23.3 billion ($710 million) in April-June, sharply higher than first quarter's NT$1.56 billion, while UMC could become profitable after three quarters of losses, according to the mean forecast of five analysts surveyed by Reuters.

Chartered Semiconductor could post its fourth straight quarterly loss in the second quarter, although the loss could be less than during the previous three months.

So far this year, TSMC's Taipei-listed shares have risen about a quarter and UMC shares are up 72 percent, compared with the TAIEX's 51 percent gain over the same period.

"This has been a better time to make money on foundry stocks," CLSA wrote in a Monday report.

"We find industry bluechip TSMC and inexpensive UMC geared for a cyclical recovery, and rate both 'outperform'," CLSA said. It rated Chartered Semiconductor a "sell".

After a strong second quarter when sales jumped 88 percent sequentially to NT$74.21 billion, TSMC's third-quarter sales are widely expected to grow by a smaller 5-10 percent from the second quarter.

Reuters

(HK Edition 07/23/2009 page2)