TAIPEI: Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest custom-chip maker, forecasts fourth-quarter sales will increase as much as 43 percent from a year earlier as the recovering global economy boosts demand.

Revenue in the current period will climb to between NT$90 billion ($2.8 billion) and NT$92 billion, from NT$64.5 billion a year earlier, Chief Financial Officer Lora Ho said at a press conference in Taipei yesterday. Third-quarter sales fell 3.3 percent to NT$89.9 billion, Hsinchu-based TSMC said.

The company, a barometer for the industry because it makes chips for everything from mobile phones to medical equipment, joins United Microelectronics Corp in reporting improving earnings. Chairman Morris Chang, 78, who returned as chief executive officer in June after a four-year hiatus, said yesterday that the global economy will return to 2008 levels by 2010.

"TSMC is the industry leader and is giving a signal the worst is over," said Harvey Chang, a fund manager at SinoPac Securities Investment Trust Co that helps oversee NT$50 billion without holding the chipmaker's shares. "Next year's outlook looks rosy, as demand for chips will likely be strong with a global recovery from the financial crisis."

Clients' inventories were "lean" in the third quarter, Chang said at the press conference. The forecast for sales this quarter exceeds the NT$86.7 billion median of 13 analyst estimates compiled by Bloomberg.

Third-quarter net income was little changed at NT$30.6 billion, or NT$1.18 a share, from a year earlier, according to a statement from the company. The chipmaker was expected to post a profit of NT$30.8 billion, the average of 15 analyst estimates compiled by Bloomberg.

TSMC shares dropped 0.3 percent to close at NT$60.30 in Taipei trading yesterday, before the results were announced. The shares have risen 36 percent on the Taiwan Stock Exchange this year, underperforming a 60 percent gain on the benchmark Taiex index, of which it's the largest member.

The chipmaker yesterday raised its spending budget for factories and equipment to $2.7 billion from a July 30 estimate of $2.3 billion. The company spent $1.9 billion last year. Spending in 2010 will rise from this year, Chang said, without providing a figure.

Gross margin, a key benchmark of profitability, climbed to 47.7 percent from 46.3 percent a year earlier and 46.2 percent in the second quarter and will be between 47 percent and 48.5 percent in the current three months.

Operating margin, which climbed to 35.6 percent in the third quarter from 35.4 percent a year earlier, will be 35 percent to 37 percent in the current period, the company said.

Worldwide demand for consumer electronics has been driven by the mainland, the world's fastest-growing major economy, after the government announced subsidies for purchases of home appliances, including televisions and computers, boosting sales at Asian chipmakers.

Bloomberg News

(HK Edition 10/30/2009 page2)