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Thursday, January 22, 2009

Taiwan Semiconductor (TSM) 4Q:08 results

Company is guiding to down 48% q/q revenues for Q1 – consensus is more like down 35%. They're forecasting gross profits of 1-5% and negative operating margins of 15-19%. Customer inventory levels are higher exiting Q4 but will trend down over the next two quarters. They believe communications customers are likely to pick up before PC customers do. The company refused to give capex guidance for 2009.

The Skew: It's likely business doesn't get significantly worse. Again, the question is going to be one of the trajectory of recovery. My assumption is that baseline growth is coming down everywhere in a more frugal worldwide economy. That doesn't mean TSM won't have a nice snapback at some point as customers replenish dwindling inventories. The problem with bottom fishing in the near-term is inventory is just being worked down. It was only a couple of weeks ago that Citi was talking about rush orders from key customers and an imminent recovery. Though corporate sentiment is definitely shifting more where you want it (scared), we have no stabilization in run rates as of yet. Taiwan Semiconductor is a very leveraged, broad-based player – the largest foundry. As such, there will be a good trade in it when utilization stabilizes and begins to work higher. Hang back for now.


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