Global chip glut hit bottom in Q1, TSMC says

TSMC reports dismal quarterly performance but says revenue will improve as the year goes on

A worldwide semiconductor glut hit bottom in the first quarter, as did sales at Taiwan Semiconductor Manufacturing Co. (TSMC), the company said Thursday.

The world's largest contract chip maker, considered a bellwether for the global IT industry because of the wide variety of chips it manufactures, reported its worst quarterly revenue performance since the second quarter of 2005. But it said revenue will only improve as the year goes on because end demand is improving and a chip glut has eased.

"We think demand certainly has recovered ... and we also believe that the recovery will extend through the second half of the year," said Rick Tsai, president of TSMC, during the company's first quarter investors' conference in Taipei.

Demand for handsets and other wireless devices is picking up, as well as that for TVs, game consoles, and digital cameras, he said.

Customers such as Texas Instruments and NXP Semiconductors have also been able to reduce chip inventories, easing a glut that had sent prices of a variety of chips down, to the detriment of companies and to the benefit of end users. Chips are often the most expensive part of an IT product.

TSMC's consolidated revenue in the first quarter fell 17 percent year-on-year to NT$64.90 billion (US$1.93 billion, as of March 31, 2007, the end of the three month reporting period.) Net profit fell 42 percent to NT$18.84 billion.

The good news for TSMC is that revenue will increase in the second quarter, is forecasted, to between NT$73 billion and NT$75 billion, as orders increase and the company can charge more for its chip production services.

Users might still see bargains for some kinds of chips going forward, in segments TSMC does not service as heavily. The price war between Intel and Advanced Micro Devices, for example, continues to mean better microprocessors at lower prices. Also, a glut of DRAM (dynamic RAM) is worsening because chip makers built too many production lines on hopes of Microsoft's new OS, Windows Vista, causing PC sales to rocket, which has not happened.

The contract price of 512MB DDR2 (double data rate, second generation) modules that run at 667MHz dropped to $20 each in the second half of April from $50.60 at the end of 2006, according to DRAMeXchange Technology, a Taiwanese company that runs an online DRAM market.

Other chip segments, such as communications, are regaining health. The global stockpile of chips in the supply chain dropped to a value of $2.5 billion in the first quarter, down 40.5 percent from its peak of $4.2 billion in the third quarter last year, according to market researcher iSuppli.