TSMC sees strong growth for 2008, but will cut spending

The top executive at Taiwan Semiconductor Manufacturing, the world's biggest contract chipmaker, offered a mixed message Thursday about prospects for the global chip industry in 2008.

Speaking at the company's third quarter investor conference, President and CEO Rick Tsai predicted that the chip industry will strengthen in 2008, but he also said TSMC will spend "significantly less" on new plants and equipment next year.

TSMC announced net sales of NT$88.96 billion [B] (US$2.73 billion) for the July to September period, up nearly 8 percent over the same time last year. Its net profit fell 6.5 percent to NT$30.37 billion, nearly in line with analyst's expectations.

"The third quarter was better than expected, not just for TSMC, but for the whole electronics industry," Tsai said. Sales of chips to the PC sector, mobile phone segment and consumer electronics products group were all brisk, he said.

But many analysts considered TSMC's forecast to be more important than its third-quarter results. That's because of uncertainty about economic growth in the U.S. due to the housing loan problems there, high oil prices, and other troubles that could ultimately impact spending on electronics.

TSMC is considered a bellwether for the tech industry because of the wide range of chips it manufactures, which end up in products including Xbox 360s, iPhones, PCs and automobiles.

"We're expecting 2008 to be a better year than 2007 for the semiconductor industry," Tsai said. The chip industry will grow by a mid-to-high single digit percentage in 2008, the company forecast, compared to expected growth of 4 percent in 2007.

Despite the rosy outlook, TSMC will reduce its 2008 capital spending from the expected US$2.6 billion in 2007. Spending cuts often indicate that a company isn't very bullish about business prospects, but TSMC said it wants to reduce spending next year because it spent heavily on production lines in 2007 that won't begin producing chips until next year.

The change in spending plans is significant, said Eric Chen, research director at BNP Paribas Securities (Taiwan) Co. Ltd. If TSMC's capital spending drops by about 30 percent, as many analysts have predicted, it won't be a surprise, he said. But if the company reduces spending by a lot more, it suggests that TSMC may be more concerned about future economic growth than it is letting on.

The IDG News Service is a Network World affiliate.