UPDATE 1-TSMC says shift to cheaper smartphones to support chip sales growth

Thu Jul 18, 2013 3:39am EDT

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(Adds Q3 outlook, chairman's comments)

* Q2 net profit up 23.8 pct to record high, beats expectations

* Sees Q3 revenue rise on mid- to low-end smartphone sales

* Sees inventory correction in Q3, suppressing margins

By Clare Jim

TAIPEI, July 18 (Reuters) - Taiwan Semiconductor Manufacturing Co Ltd said it expects sales of cheaper mobile devices in emerging markets like China to boost its earnings in the second half, brushing off concerns over slowing demand for high-end smartphones.

TSMC, the world's top contract chip maker, has been riding on robust demand for its chips made with 28-nanometre process technology, which crams more computing power into smaller micro-circuits, as consumers shift from clunky personal computers and laptops to smartphones and tablets like Apple Inc's iPad.

The company said on Thursday it expects third-quarter revenue to rise to between T$161 billion and T$164 billion ($5.4 billion and $5.5 billion), from T$155.9 billion in the previous quarter.

"Contributions from China to our total business will be doubled this year from last year," TSMC Chairman Morris Chang told an investor conference.

Chang said shipments of low- and mid-level smartphones would grow 69 percent and 36 percent respectively in 2013 from from a year ago, compared with 18 percent growth for top-tier handsets.

However, supply chain inventory in the third quarter would be higher than expected three months ago as integrated circuit design companies prepared for major smartphone launches.

As a result, TSMC lowered its forecast for full-year semiconductor industry revenue growth by 1 percentage point to 3 percent, but lifted its foundry revenue growth forecast by 1 percentage point to 11 percent.

Chief financial officer Lora Ho said an inventory correction in the third quarter would put pressure on margins.

The company, which controls half of the $34.6 billion global contract chip market, said its second-quarter net profit rose 23.8 percent from a year ago to a record T$51.81 billion ($1.7 billion), beating forecasts.

TSMC's clients include Qualcomm Inc, Texas Instruments Inc and Nvidia Corp. In turn, these firms sell chips to consumer electronics companies like South Korea's Samsung Electronics Co Ltd and Taiwan's HTC Corp as well as Apple.

Samsung Electronics and HTC earlier this month posted second-quarter earnings that fell short of forecasts, deepening worries that the market for expensive smartphones may have peaked in the absence of must-have innovations. [ID:ID:nL3N0F91WF]

Intel Corp, which makes its own chips but has started to get into the contract making business, cut its full-year revenue forecast on Wednesday.

Analysts say contract chipmakers' revenue are being squeezed as consumers, particularly in emerging markets, opt to buy mid- to low-end phones instead of more expensive handsets.

Shares of TSMC have risen about 10 percent in the year to date, versus a 6.5 percent rise in the broader market. (Reporting by Clare Jim; Editing by Stephen Coates)

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