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World's largest chip-maker hit by downturn

TSMC reports worst revenue in 20 months

TSMC (Taiwan Semiconductor Manufacturing Co), the world's largest contract chip maker, reported its worst monthly revenue in 20 months today. Far from being all doom and gloom, however, analysts cited the figure as further proof that an industry glut may be dissipating.

TSMC said its revenue in February hit $624.2m, down 14.3 percent compared to last year and its worst monthly revenue figure since June 2005.

Despite the poor showing, analysts said it was a strong figure considering February is a shorter work month, at only 28 days, and that a major holiday, the Lunar New Year, celebrated throughout Taiwan and much of Asia, also slowed work at TSMC factories. Last year, the Lunar New Year, which is usually a week-long holiday in Taiwan, was on 29 January. This year, the first day of the Year of the Pig fell on 18 February.

"I think the February sales figure was fantastic. It was only down about 2 percent from January," said Warren Lau, chip industry analyst at Macquarie Securities in Hong Kong. He said TSMC's February revenue was further proof that a chip glut that has hampered the industry for the past several months is nearing an end.

But the return to health over the next few months could be specific to TSMC, and not include the wider chip industry.

Earlier this week, AMD said it will miss its revenue goal for the first quarter of 2007, while rival Intel outlined plans to beat a microprocessor glut and weak corporate demand for PCs by stepping up chip development speeds.

The two companies engaged in a price war last year, and continue to suffer as they duke it out in the market, analysts say.

Gartner believes the chip industry won't start to recover from the glut until the second half of this year.

Rising inventories in late 2006 caused companies to slow production and ease off on buying new machinery as a drop in orders idled more and more production lines, said David Christensen, a Gartner analyst, in a recent report.

"Look for this trend to continue through the first half of 2007, followed by a slow recovery in the second half of the year," he wrote.

Last month, the market researcher revised down its revenue growth estimate for the chip industry this year to 6.4 percent, from a previous forecast of 9.2 percent. Gartner estimates chip industry revenue will reach $259.7bn this year.


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