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TSMC Again Cuts Semiconductor Sales Growth Forecast of 2015

Jul 22, 2015 | By Ken Liu

TSMC Chairman Morris Chang again cuts 2015 sales growth forecast for the chip sector.TSMC Chairman Morris Chang again cuts 2015 sales growth forecast for the chip sector.
Taiwan Semiconductor Manufacturing Co. (TSMC), reportedly the world's No.1 dedicated manufacturer or silicon foundry of built-to-order chips, has cut its 2015 sales growth forecast of the global semiconductor industry to 3 percent year on year from 4 percent after trimming the growth target from 5 percent it had projected in April.

The company ascribes the latest cut mostly to slow clearance of inventory by customers, coupled with the company's feeling of uncertainty about the outlook of the global economy.

TSMC executives point out that in the second quarter alone such inventory backlogs had piled up to the levels registered between 2008 and 2009, the worst of the 2008 global financial meltdown.

Contributing to the high inventory, they say, is the slower-than-expected sales of smartphones in mainland China and other developing economies in addition to compromised purchasing power in some markets due to the strengthening U.S. dollar.

Affected by the weak market, the company has also cut the sales growth guidance of the global silicon foundry industry to 6 percent year on year from 10 percent.

The company projects its consolidated sales revenue for the normally busy third-quarter to increase 1 to 2 percent from the previous quarter at most, to between NT$207 billion (US$6.67 billion) and NT$210 billion (US$6.77 billion). Such projected growth is higher than the 5 percent decrease forecast by pessimistic industry executives but lower the 3-5 percent increase by optimistic industry executives.

Gross margin ratio is estimated at 47-49 percent, down around 0.5 of a percentage point from the previous quarter. Operating income ratio is projected to stand between 36.5 percent and 38.5 percent, also dipping around 0.5 of a percentage point.

In the second quarter, the foundry giant had consolidated revenue of NT$205.4 billion (US$6.62 billion), down 7.5 percent from a quarter earlier but up 12.2 percent from the same quarter of last year.

Affected by the slower-than-expected demand, TSMC's earnings from core business for the second quarter hit a 12-quarter low of NT$58.36 billion (US$1.88 billion). However, earnings from non-core business operations helped boost the company's after-tax net income for that quarter to a new high of NT$79.42 billion (US$2.56 billion), or NT$3.06 per diluted share.

Regardless of the mixed market expectations of the company's third quarter results, TSMC Chairman Morris Chang points out that the company has always managed to weather market turmoil unscathed. He feels the company's results for the second half of this year will outperform its first half results. Also, the company's sales growth will maintain at a double-digit percentage throughout this year except the rate will slow close to 10 percent.

As for outlook of the global industry in 2016, he thinks the chance for the industry to stay on track for improved development is quite high in consideration of the average annual growth of 4-6 percent in the past few years.

TSMC Co-Chief Executive Officer (CEO) Mark Liu predicts the inventory will be depleted to a healthy level by the fourth quarter. He says the inventory was only half cleared in the second quarter, slower than the company's original expectation that it would be completely digested by the end of the second quarter. Now the company estimates that most of the backlog will be cleared by the end of the third quarter.

The company maintains its capital expenditure for this year at US$10.5-11.0 billion. The company's chief financial officer (CFO), Lora Ho, says the company will reduce such spending in the future to increase its disposable income and dividend. 

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