TSMC increases capex for 2005 amid gloomy business expectations

Jan 31, 2005 Ι Industry In-Focus Ι Electronics and Computers Ι By Ken LPM, CENS
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Taipei, Jan. 31, 2005 (CENS)--Chairman Morris Chang of wafer-foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC) recently said his company would increase capital expenditure to US$2.5-2.7 billion this year although he forecast his industry to be worse than chip-making industry worldwide.

The projected 2005 spending will represent another new high in the company's history and has surprised chip-making equipment supplier. The capital, Chang said, would be mostly spent on leading-edge process technologies such as sub-90nm nodes and 300-mm wafer tools, keeping its leadership in the industry. Throughout last year, the world's No. 1 supplier of built-to-order chips spent US$2.4 billion on expansion.

T.F. Lu, a senior analyst tracking world semiconductor industry at Goldman Sachs & Co., said the TSMC's planned 2005 capital spending was higher than his expectation of US$2.4 billion and the industry's US$2.1 billion. He thought the higher-than-expected spending would boost TSMC's share prices.

In reply to industry watchers' questions on why the company wants to increase capital spending at a time when business outlook remains hazy, Chang said that the spending is affordable to his company and accounts for 33% of his company's 2004 total revenue (US$8 billion), on par with the percentage of 2005 spending against 2004 revenue at Samsung Electronics' semiconductor unit.

Intel, currently the world's No. 1 chipmaker, has planned to spend US$5.1 billion on expansion this year, a capital accounting for 40% of its 2004 revenue.

Some industry watchers feared that bold expansions at world's leading chipmakers might trigger another wave of over capacity and slow down leading international device manufacturers' (IDMs') plans to increase outsourcing to pure foundries. Chang said his company could not save world chip industry out of supply-glut crisis by simply cutting its expansion spending and the bold expansions at Intel and Samsung would not affect his company's business since the world's top two IDMs have depended on pure foundries for a minor portion of their chips.

Chang forecast world chip industry to recess 2% throughout this year and foundry segment to be worse. However, he estimated world chip industry to post a 10% growth next year and his company's capacity-utilization rate to rebound next quarter from this quarter's 78%.
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