TSMC Climbs After Saying Inventories Will Decline: Taipei Mover

Taiwan Semiconductor Manufacturing Co., the world’s largest contract maker of chips, advanced to its highest in three months in Taipei after forecasting a decline in inventories would offset a slowdown in revenue.

The chipmaker rose 2.8 percent to NT$110 at the close in Taipei, the highest since July 12. The benchmark Taiex index advanced 0.8 percent.

Stockpiles will fall this quarter and approach normal seasonal levels, Chairman and Chief Executive Officer Morris Chang said yesterday. The Hsinchu, Taiwan-based company forecast sales of its chips, which are used in handsets from BlackBerry Ltd., Apple Inc. and HTC Corp. as well as Sony Corp. game consoles, will decline about 10 percent in dollar terms from the prior quarter, in line with analyst estimates.

“Inventory correction concerns have eased as management said supply-chain inventories will return to the normal seasonal level after the correction in 4Q13,” Michael Liu and William Kuo, Taipei-based analysts at KGI Securities Co. in Taipei, wrote in a report.

TSMC yesterday reported its slowest growth in net income for six quarters after sales at the maker of chips for Qualcomm Inc. and Broadcom Corp. missed expectations because clients trimmed orders amid rising stockpiles.

‘Softer Demand’

“This decline is mainly attributable to the softer demand for certain high-end smartphones and the inventory correction,” Chang said at an investors’ conference in Taipei. “We believe the decline is short-term.”

Sales in the fourth quarter will be between NT$144 billion ($4.9 billion) and NT$147 billion, Chief Financial Officer Lora Ho said yesterday, compared with the NT$146.7 billion average of analyst estimates compiled by Bloomberg.

Full-year capital expenditure will be about $9.7 billion this year and about $10 billion next year, Chang said. Full-year revenue this year will climb 17 to 18 percent, with growth next year of at least 10 percent while less than for 2013, he said.

Chang, 82, said he will appoint one new chief executive officer, or two co-CEOs, before June next year, ending his current term as CEO which began in 2009.

“There’s no such thing as non-executive chairman in Taiwan,” Chang said. “I wasn’t hands-on between 2005 and 2009, now I am telling you I will be hands-on.”

Chang has remained chairman since he founded the company in 1987 and said yesterday the logical candidates to take over as CEO are two of the current chief operating officers. Mark Liu, C.C. Wei and Chiang Shang-yi are COOs at TSMC. Chiang will retire this year, the company announced last month.

“Management’s clarification of the CEO successor plan should ease some concerns about the uncertainty of a management reshuffle,” Deutsche Bank AG Taipei-based analysts Michael Chou and Kevin Wang wrote in a report today.

               3Q                            4Q
               Company   Company   Analyst   Company   Analyst
               Actual    Forecast  Estimate  Forecast  Estimate
Sales NT$bln   162.6     161-164   163.1     144-147   146.7
Gross Margin%  48.5        47-49    48.3     44-46     45.1
Op Margin%     36.7        35-37             32-34
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