UPDATE 1-TSMC sees Q4 sales slide as smartphone makers pause

Thu Oct 17, 2013 4:41am EDT

* Taiwan chip maker sees Q4 revenue down up to 11 pct on qtr

* Chairman sees softer demand for some high-end smartphones

* TSMC still expects double-digit sales growth in 2014

By Clare Jim

TAIPEI, Oct 17 (Reuters) - Taiwan Semiconductor Manufacturing Co Ltd , the world's biggest contract chip maker, warned chip sales will fall sharply in the coming three months as mobile device makers rein in new product launches and high-end smartphone sales weaken.

While a surge in gadget sales helped TSMC's third-quarter net profit grow more than 5 percent, companies like Apple Inc , Samsung Electronics and other smartphone makers will order fewer new parts, including chips, as they run down stocks and begin lining up new models.

TSMC said on Thursday it expects fourth-quarter revenue to drop up to 11 percent to between T$144 billion and T$147 billion ($4.90 billion and $5.00 billion), down from T$162.58 billion in the previous quarter. It previously said October-December revenue might fall more than 7 percent compared with the previous three months.

"The mobile product boat is slowing down," TSMC's chairman and chief executive officer, Morris Chang, told an investor conference in Taipei. He said the drop in fourth-quarter revenue is "mainly due to softer demand for certain high-end smartphones and inventory correction."

The third quarter is typically a high water mark for chip companies as device makers bring new products onto the market ahead of the year-end holiday season, a key time for gadget sales. TSMC also experienced a dip in sales in the fourth quarter last year as companies ran down supply inventories.

Earlier on Thursday the company reported net profit for the third quarter beat analysts' forecasts, rising to a quarterly record of T$51.95 billion. Revenue during the period was T$162.58 billion.

STRONG 2014 FORECAST

Beyond a weaker fourth quarter, Chang said he expects 2014 to be another year of double-digit percentage sales growth for TSMC, whose shares have climbed about 8 percent in the year to date versus a 7.7 percent rise in the broader Taiwan market .

Chang confirmed that he will hand over his CEO role to a new incumbent by June next year, but plans to stay on as chairman with a hands-on say in running the business.

For the semiconductor industry as a whole, Chang said he expects growth of 4 percent in 2013, compared with a previous forecast of 3 percent, driven by stronger global sales of memory chips -- a segment Samsung dominates. TSMC itself doesn't make memory chips.

The Taiwanese company has been riding high over past three years on strong chip sales fuelling the global boom in mobile computing, helping it retain its lead in the race to build the tiniest and most powerful chips for clients. The company controls half of the $34.6 billion global contract chip market.

TSMC's direct clients are chip designers such as Qualcomm Inc, Texas Instruments Inc and Nvidia Corp . In turn, the firms then sell chips to smartphone makers like Samsung and Apple.

"The fourth quarter is right now kind of being a flaky quarter. We have seen signs of people slowing their semiconductor chip production significantly," said Dean Freeman, a vice-president at tech research company Gartner, speaking ahead of TSMC's forecast.

"A lot of it just depends on how the consumer feels with respect to spending money, and right now if you look at the data coming out of the United States, the consumer's not feeling very frisky. They've really retrenched."

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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