TSMC revives its strategy for investment

Published: June 19 2009 03:00 | Last updated: June 19 2009 03:00

Taiwan Semiconductor Manufacturing Company, the world's largest contract chipmaker, has become one of the first big technology companies to bet on a recovery by restoring investment plans curtailed only months ago.

Morris Chang, TSMC's founder, who returned as chief executive a week ago , said yesterday that the company planned to boost its manufacturing capacity and technological prowess.

He likened the economic downturn to a Greek tragedy, with the first act being the financial crisis and the second being the global economic slowdown.

"In the end, there must be a third act: recovery," Mr Chang said. "For our industry, I feel the worst is over. The path to recovery is long and may have some twists and turns . . . but the trend is upwards."

TSMC saw its biggest fall in revenue to date in the first quarter, but is expecting sales to recover in the second quarter on the back of customers replenishing stocks and on strong Chinese demand for electronics.

Speaking at a conference, Mr Chang said that TSMC now planned about $1.9bn in capital expenditure this year, around the same amount as last year. I n April , the group said it would cut capital expenditure by about 20 per cent this year to $1.5bn.

TSMC also aims to increase research and development spending by 20 per cent this year, mainly through expanding its 1,200-strong research and development team by 30 per cent and adding a further 90 people to its design technology team.

Capital spending across the semiconductor industry is expected to fall nearly 45 per cent this year to $24.3bn, according to Gartner , the research company.

It said in a report, however, that equipment spending by chip companies had bottomed out in the second quarter and predicted that capital investment next year would reach $29.4bn, 21 per cent more than this year.

"The impact of the economic crisis has hit the semiconductor equipment industry hard, but signs of life are returning," said Klaus Rinnen, managing vice-president at Gartner.

TSMC is struggling with shrinking industry profit margins, which it said had averaged 21 per cent in 2004 but fell to 15 per cent last year.

It has established a unit to diversify away from chips by investing in "green" energy and LED industries.