PREVIEW-TSMC Q2 net seen stronger; UMC to turn around

* What: TSMC, UMC, Chartered Semi Q2 results

* When: Chartered (July 24), UMC (July 29) and TSMC (July 30)

* Q2 results seen stronger than Q1

TAIPEI, July 22 - Top contract chipmaker TSMC <2330.TW> probably made its largest profit in three quarters in the second quarter, while money-losing rival UMC <2303.TW> could have returned to the black thanks to growing demand.

Sales of chips used in personal computers, mobile phones and flat-screen TVs could gather speed, partly on back-to-school demand into the third quarter, while Taiwan Semiconductor Manufacturing Co (TSMC) may further expand its share of the $20 billion chip foundry market.

The world's two biggest foundries, which supply chips to fabless chip designers and chipmakers that are stepping up outsourcing to cut costs, have benefitted from China's massive stimulus package since early this year that has fuelled consumer spending on electronic devices.

Analysts say cash-rich companies such as TSMC usually have the ability to spend more on new, more cost-effective production technologies, while second-tier rivals, including Singapore-based Chartered Semiconductor and China's SMIC <0981.HK> have limited research spending.

"TSMC has been in the driving seat in migrating to advanced technologies and that's why I always have confidence in its business," said Andrew Deng, an assistant vice-president at Taiwan International Securities. "In terms of orders, visibility is clear for the third quarter for the overall foundry market."

TSMC is expected to ship more graphics chips made by new 40-nanometre process technology to its clients, including Nvidia and AMD , in the third quarter, according to Deutsche Bank.

News from some big semiconductor makers in the United States has been upbeat -- Intel's quarterly results and outlook exceeded analysts' forecasts last week on improved consumer demand for PCs [ID:nN14260734], while Texas Instruments (TI) also posted a stronger-than-expected profit and outlook on Monday. [ID:nB86748]

TSMC is expected to report a net profit of T$23.3 billion ($710 million) in April-June, sharply higher than first quarter's T$1.56 billion, while UMC could become profitable after three quarters of losses, according to the mean forecast of five analysts surveyed by Reuters.

Chartered Semiconductor could post its fourth straight quarterly loss in the second quarter, although the loss could narrow from the previous three months.

So far this year, TSMC's Taipei-listed shares have risen about a quarter and UMC shares are up 72 percent, compared with the main TAIEX's <.TWII> 51 percent gain in the same period.

"This has been a better time to make money on foundry stocks," CLSA wrote in a Monday report.

"We find industry bluechip TSMC and inexpensive UMC geared for a cyclical recovery, and rate both 'outperform'," CLSA said. It rated Chartered Semiconductor a "sell".

After a strong second quarter when sales jumped 88 percent sequentially to T$74.21 billion, TSMC's third-quarter sales are widely expected to grow by a smaller 5-10 percent from the second quarter.

Q2 PROFIT (LOSS) FORECASTS

Net profit/loss Change (pct) Y/Y Q/Q TSMC T$23,300 mln -19 +1394 UMC T$1,036 mln -57 -- Chartered ($56.2 mln) -- -- NOTE - Both UMC and Chartered lost money in the first quarter of 2009, while Chartered saw profits in the second quarter of 2008. ($1=T$32.8)