TAIPEI: Taiwan Semiconductor Manufacturing Co, the world's largest custom-chip maker, has reported a higher second-quarter profit than analysts' estimates had predicted. The better-than-expected performance was fueled by the recovery of the prices for the company's components.

Net income was NT$24.4 billion ($742 million), or NT$0.94 a share, compared with NT$28.8 billion, or NT$1.09, a year earlier, the Hsinchu, Taiwan-based company said yesterday. Taiwan Semi was expected to report a profit of NT$22.1 billion, according to the median of 12 analysts' estimates compiled by Bloomberg.

Taiwan Semiconductor Chairman Morris Chang, 78, took over the CEO's post at the company he founded 22 years ago, to guide it out of its worst slump in eight years. The company joins closest rival, United Microelectronics Corp, the world's No 2 custom-chip maker, in reporting better-than-expected profit for the quarter, as demand for computers drove prices up again.

"Customers are lowering their inventory levels at a faster pace than we expected three months ago thanks to stronger-than- expected sales momentum," Michael Chou and Ricky Liu, who rate the stock "buy" at Deutsche Bank AG in Taipei, wrote in a report on Monday.

Taiwan Semiconductor's second-quarter revenue, reported earlier, dropped 16 percent to NT$74.2 billion, in line with a NT$74.2 billion median from 11 analysts and at the top end of its own guidance for NT$71 billion to NT$74 billion.

The chipmaker fell 0.9 percent to close at NT$56 yesterday in Taipei, taking this year's advance to 27 percent, compared with a 53 percent climb in the benchmark TAIEX index.

Gross margin, which measures sales less cost of goods sold, climbed to 46.2 percent in the second quarter from 45.6 percent a year earlier, beating the 45 percent median of five analyst estimates compiled by Bloomberg News. The gross margin measure is a yardstick of the company's chip prices.

Chang returned to the chief executive role after four years, displacing Rick Tsai, 58, who was transferred to head Taiwan Semiconductor's new business development unit. Chang said at the annual shareholders' meeting on June 10 it will take at least until 2012 before industry revenue climbs back to 2008 levels.

The return of Chang, the oldest CEO of any major chipmaker worldwide, cast doubts on succession plans for Taiwan's largest listed company. Shares have dropped 3.5 percent since the June 11 announcement of Chang's return, underperforming the benchmark TAIEX's 7 percent gain.

"Chang is close to 80. He's not the future of TSMC, and yet the company isn't telling us who will be," Robyn Hsu, who owns Taiwan Semiconductor shares in the $3 billion of funds he helps manage at Capital Investment Trust Corp in Taipei, said after Chang's reappointment. For Taiwan Semiconductor, "this is the biggest issue going forward."

Bloomberg News

(HK Edition 07/31/2009 page2)