TSMC Jan sales down 20 pct but near bottom

(Adds details)

TAIPEI, Feb 9 (Reuters) - TSMC (2330.TW) (TSM.N), the world's top contract chip maker, reported on Friday its January sales fell by a fifth from a year ago, marking its third straight annual drop, after customers cleared out unwanted stockpiles.

Both Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and smaller rival United Microelectronics Corp. (UMC) (2303.TW) have forecast a weaker first quarter, but analysts say the downturn is near a bottom as clients could empty stocks and go back to placing new orders from the second quarter. TSMC, which expects its business to bottom out by the end of March, had unconsolidated sales of T$20.851 billion ($634 million) last month, down from T$26.178 billion a year ago, the company said, without giving an explanation.

TSMC, which counts top cellphone chip supplier Texas Instrument Inc. (TXN.N) as a major clients, had sales of T$22.376 billion in December. TSMC posted its smallest profit in five quarters in late January.

(Click [nTP106616] for details)

TSMC announced the sales figures as the Taipei stock market closed. Its shares fell 0.58 percent to T$68.00, versus the main TAIEX's 0.22 percent rise.

Shares of UMC, which saw January sales fell by 2 percent from a year ago, gained 1.98 percent to end at T$20.60.

For the first quarter, TSMC expected sales to fall to T$62 to T$64 billion from T$74.9 billion in October-December, with gross profit margin easing to 37 to 39 percent from 46 percent in the fourth quarter.

"TSMC stated that 1Q07 was the cyclical trough of its operation. This highlights that a rebound in business should start from March as some customers accelerate their order flows," Macquarie Research said in a recent report.

It maintained an outperform rating on TSMC.

UMC said the inventory correction was ongoing in the first quarter but should come back smoothly in the second quarter.

Analysts said the focus now was on a recovery driven by the launch of Microsoft's (MSFT.O) Vista operating system and a new crop of next-generation consumer products, such as mobile phones, game consoles and LCD televisions.

TSMC and UMC, which take about two-thirds of global market share together, have been locked in a race to develop new technology and make cutting-edge chips for new electronics products.

(US$1=T$33.0)

((Reporting by Baker Li, editing by Anne Marie Roantree; baker.li@reuters.com; Reuters Messaging: baker.li.reuters.com@reuters.net; +886 2 2508-0815)) Keywords: TSMC RESULTS/SALES/

(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nTP12144