UPDATE 1-TSMC's May sales show further improvement

* May sales were biggest monthly sales in 7 months

* Analysts say on track to meet Q2 target, but T$ a concern

* TSMC chairman says worst for semi market is over

* TSMC, UMC shares outpace big board (Recasts with comments and graphics)

By Baker Li

TAIPEI, June 10 (Reuters) - TSMC 2330.TWTSM.N, the world's top contract chip maker, booked its biggest monthly sales in seven months thanks to a pick-up in demand for chips used in computers and other consumer gagdets.

TSMC’s May sales still fell from a year earlier but analysts say the result was in line with their expectations and TSMC was on track to meet its second-quarter sales target, even though a strong Taiwan dollar threatens to hurt its profit margins.

Taiwan Semiconductor Manufacturing Co Ltd (TSMC) had unconsolidated sales of T$24.47 billion ($748 million) last month, down 15.6 percent from a year ago. But that was up 12.6 percent from April, its third straight month-on-month rise.

Similarly, cross-town smaller rival UMC 2303.TWUMC.N saw its May sales rising 9.3 percent from April. Both TSMC and UMC have benefitted from strong demand from China recently. [ID:nTP339885]

At its annual shareholders’ meeting earlier on Wednesday, TSMC Chairman Morris Chang showed his confidence in the recovery.

“The worst for the semiconductor market has gone,” Chang said.

“The second quarter is much better than the first quarter.”

Chang said the U.S. economy could start recovering from the fourth quarter this year but he reiterated that sales of the global semiconductor market were likely to grow 5-6 percent annually in the next few years.

TSMC has said it expects its second-quarter sales to rise to between T$71 billion and T$74 billion from the first quarter’s T$39.5 billion, with gross profit margin reaching 43.5-45.5 percent in the same quarter. [ID:nTP343810]

“In terms of wafer-in, momentum remains strong and there is very little sign of a slowdown, which suggests little downside risk for the 3Q business,” Macquarie Research analyst Warren Lau said in a report published in late May.

But he said the recent strength of the Taiwan dollar against the U.S. dollar was a negative factor for TSMC.

Investors chased TSMC shares on Wednesday before the company released the sales results. TSMC shares rose 3.74 percent and UMC shares jumped 2.82 percent, outperforming the main TAIEX’s 0.75 percent gain.

On a consolidated basis, TSMC’s sales totalled T$87.2 billion in the first five months of the year, down 40 percent from a year ago, the company said in a statement.

For a graphic on TSMC's monthly sales, clickhere

For a graphic on TSMC and UMC's combined sales, clickhere (US$1=T$32.7) (Editing by Jacqueline Wong)