TSMC forecasts upbeat 2014 on mobiles and margins

By Clare Jim and Michael Gold

TAIPEI (Reuters) - Taiwan Semiconductor Manufacturing Co Ltd painted a bright outlook for its 2014 business, driven by mobile devices and improved margins from its more advanced chips.

The one cloud on the horizon for the company, which beat expectations with a 7.7 percent rise in fourth-quarter net profit, is a forecast sales slowdown in the first quarter due to a pull-back of purchases ahead of new product launches by smartphone and tablet manufacturers.

Embroiled in a race against Intel Corp, which plans to expand its contract manufacturing business, TSMC expects sales with double-digit growth and profit for 2014.

Mark Liu, one of the newly appointed co-chief executives, rebuffed Intel's assertion that the U.S. company's latest process technology was more advanced.

Liu told an investor conference that what Intel has showed its investors was "erroneous and based on outdated data".

"(Our latest generation process) scaling is much better than what Intel said, though still a little bit behind," Liu said, adding that TSMC has a "far superior" ability to execute a short time to market for customers than Intel and Korean rival Samsung Electronics Co Ltd.

Earlier this week, Intel said it has delayed opening a major factory in Arizona that was originally planned to start producing chips made from the most advanced 14 nanometer process after it was hit by slumping personal computer sales.

SMALLER CHIPS

TSMC, which holds a 50 percent market share, has reaped lucrative profits in the past two years from its dominance in offering chip designers its cutting-edge 28-nanometer process technology.

This year, TSMC is moving to a more advanced 20-nanometer process with mass production expected this quarter and plans to start mass production using a 16 nanometer FinFET process in 2015.

The smaller the process means the more transistors can be added onto a chip, making it more powerful and efficient.

TSMC kept its 2014 capital spending plan at around $9.5 billion to $10 billion, the same level as last year, to speed up its technology development to build the tiniest and most powerful chips for smartphones and tablets.

The plan came in below market expectations that it would target another record year of spending after laying out $9.7 billion in 2013.

The Taiwanese semiconductor maker had the third-largest capital spending in the chip industry last year, trailing Samsung Electronics, which spent around $22 billion, and Intel which spent around $11 billion.

On Thursday, TSMC said it posted a net profit in the fourth quarter of T$44.81 billion, beating analysts' estimates of $42 billion.

The company also said it expects first-quarter revenue to fall as much as 6.7 percent from the previous quarter to between T$136 billion and T$138 billion ($4.52 billion to $4.59 billion), down from T$145.81 billion in the fourth quarter and below market forecasts of T$140.56 billion.

The company blamed the projected fall on an industry undergoing an inventory correction in the supply chain due to a pull-back of component purchases ahead of new product launches by mobile gadget companies in a new year.

(Additional reporting by Patturaja Murugaboopathy; Editing by Matt Driskill)