Oct. 25 (Bloomberg) -- Taiwan Semiconductor Manufacturing Co., the world's largest custom chip maker, posted third-quarter profit that missed analysts' estimates as sales growth of mobile-phone chips stalled. The company forecast record revenue this quarter.

Net income dropped 6.5 percent to NT$30.4 billion ($936.2 million), or NT$1.15 a share, from NT$32.5 billion, or NT$1.23, a year earlier, the Hsinchu, Taiwan-based company said today in a statement. Thirteen analysts in a survey compiled by Bloomberg had an average profit estimate of NT$32.1 billion.

The chipmaker's customer, Texas Instruments Inc., the world's biggest maker of mobile-phone chips, posted a decline in third- quarter sales. Taiwan Semiconductor said demand for chips used in computers and communications products will drive sales in the fourth quarter.

``The outlook is above my expectations,'' said George Wu, an analyst at Keywise Capital Management Ltd. in Hong Kong which has $1.1 billion in funds.

Taiwan Semiconductor shares rose 0.5 percent to NT$61.10 at the end of trading in Taipei before the earnings were announced. The chipmaker's stock has fallen 9 percent this year, while the island's benchmark Taiex index has gained 22 percent.

The company's average prices slid from last year and the company will work harder to ``extract better value out of our investments'' in equipment and technology, Chief Executive Officer Rick Tsai said at a briefing in Taipei.

`Not satisfied'

``We're not satisfied with our pricing performance,'' Tsai said, without providing details.

The worldwide chip market next year will outpace 2007's growth of 4 percent, while foundries such as Taiwan Semiconductor will grow faster than the industry, he said.

The company's profit was eroded by a 68 percent increase in taxes to NT$3.6 billion. The chipmaker lost some tax credits previously offered by the government, Chief Financial Officer Lora Ho said.

Rising demand for graphics chips, which enable users to watch DVDs and play video games on computers, helped Taiwan Semiconductor increase third-quarter sales 7.9 percent to a record NT$88.96 billion from a year earlier, the company reported.

Fourth-quarter revenue will rise to between NT$92 billion and NT$94 billion, the Taiwan company said. That's higher than the NT$90.7 billion average estimate of 19 analysts compiled by Bloomberg.

Operating margin, which measures the percentage of sales minus operating expenses, will be 37 percent to 39 percent.

Equipment Spending

The company said it will spend about $2.6 billion this year on equipment, which is at the low end of its earlier guidance of $2.6 billion to $2.8 billion.

Spending on equipment next year will be ``significantly less'' than this year, Tsai said, without providing further details. This year's budget covers ``some of 2008's needs,'' he said.

The chipmaker's nearest rival United Microelectronics Corp.'s budget this year is $1 billion to $1.2 billion

Taiwan Semiconductor's gross margin, or sales minus production costs, was 45.8 percent, compared with 49.9 percent a year earlier. The gross margin this quarter will be between 46 percent and 48 percent, the company forecast.

Steven Pelayo, an analyst for HSBC in Hong Kong, estimated third-quarter gross margin of 45.5 percent and the same for the fourth quarter.

Texas Instruments

Texas Instruments sales fell 2.6 percent to $3.66 billion, the Dallas-based company said Oct. 22. Revenue this quarter will gain to as much as $3.68 billion, missing the average estimate of $3.7 billion in a Bloomberg survey of analysts.

United Microelectronics, based in Hsinchu, is expected to say third-quarter profit declined 26 percent to NT$6.36 billion, according to the average estimate in a survey of 17 analysts compiled by Bloomberg. Profit at the company was boosted last year by one-time gains from share sales.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

Last Updated: October 25, 2007 06:55 EDT