Looking a little like Q4 2007's foundry results, Hsin-Chu, Taiwan-based semiconductor foundry giant Taiwan Semiconductor Manufacturing Co Ltd (TSMC) led off a mixed bag of Q1 foundry financials. It announced on Tuesday that its consolidated revenue for Q1, ending March 31, was $2.9 billion (87.5 billion New Taiwanese dollars), up 34.8% year-over-year, but down 6.8% sequentially.

TSMC's Q1 net income was $924.3 million (28.1 billion NT) and diluted earnings per share were 17 cents per ADS unit (1.10 NT). Comparatively, on a year-over-year basis, Q1 net income and diluted EPS increased 49.4% and 54%, respectively. On a sequential basis, Q1 net income and diluted EPS both decreased; 18.4% and 16.4%, respectively.

The world's leading foundry noted that Q1 business followed a normal seasonal pattern, but revenue and margins were negatively impacted by the strength of the Taiwanese dollar, with the 2.6% average appreciation of the NT dollar reducing revenue by 2.6% and reducing gross margin by 1%, with the resulting gross margin at 43.7%, operating margin at 33.3%, and net margin at 32.2%.

Further, TSMC's advanced process technologies, which it defines as 0.13-micron and below, accounted for 63% of wafer revenues with 90nm process technology accounting for 28% and 65nm reaching 15% of total wafer sales.

"First quarter was a good quarter. The results were in line with guidance, in spite of the higher than forecast appreciation of the NT dollars against the US dollars. In addition, we began implementing a new ROC accounting rule which requires the expensing of employee profit sharing," commented Lora Ho, TSMC's VP and CFO, in a statement.

Based on its current business outlook, TSMC expects Q2 revenue to be between $2.86 and $2.92 billion (87 and 89 billion NT); gross profit margin to be between 43% and 45%; and operating profit margin to be between 32% and 34%.

UMC Feels Impact of Inventory Adjustments

Meanwhile, Taipei, Taiwan-based foundry challenger United Microelectronics Corp [UMC] felt the pain of inventory adjustments as reflected in its Q1 financial results, reported today. UMC's Q1 revenue decreased 13.1% sequentially to $788.4 million (24 billion NT). On the bright side, Q1 revenue showed a 4.2% year-over-year increase.

While average selling prices (ASPs) were up by 2%, wafer shipments were down by 12.4% while the stronger-than-expected NT$ contributed to the further decrease of revenues in local currency, UMC noted.

UMC's Q1 gross profit was $117.6 million (3.58 billion NT), or 14.9 % of revenue, compared to $185.6 million (5.65 billion NT), or 20.5% of Q4 2007 revenue, while Q1 operating profit was a meager $6.2 million (190 million NT), or 0.8% of revenue, compared to $43.7 million (1.33 billion NT), or 4.8% of Q4 2007 revenue.

Lower wafer shipments due to order adjustments for softness in seasonal demand and inventory correction by several customers were the primary reasons for the decrease in revenues, and gross and operating margins during the first quarter, UMC explained.

UMC's Q1 net income was $6.8 million (206 million NT), compared to $44.7 million (1.36 billion NT) in Q4 2007.

"The appreciation of the NT$ added another negative variable to Q1. However, we are glad to report that even during such a challenging situation, UMC's quarterly performance exceeded the original guidance. We are also happy to see that revenue contribution from 0.13-micron, 90nm and 65nm rose to account for 58% of total revenue. Both 90nm and 65nm showed healthy growth at 30% and 7%, respectively. Net loss due to currency exchange was $1.5 million (46 million NT), which is relatively insignificant considering UMC business size," UMC chairman and CEO, Dr. Jackson Hu commented in a statement.

"Our leading technology customers continue to prepare for 65nm production. We therefore expect continuous increase in volume and revenue during the remainder of the year for this technology node. We are also working closely with early adopters for 45-/40nm. Most of them will be in the prototype development stage in the coming months. Finally, we are developing 32nm with customers as well. Besides CMOS logic, we are closely working with Elpida to further improve the DRAM process and develop synergistic processes to broaden our technology offering. Details will be disclosed at a proper time later," Hu added.

Looking ahead to Q2, UMC expects wafer shipments: to increase by approximately 10%, with wafer ASP in US$ to decrease by approximately 2%, while the impact from currency fluctuation will be -3% to -5% on revenue. Q2 capacity utilization rate is expected to be approximately 80%, with gross profit margin to be approximately 20%. The communication segment is expected to the strongest followed by the consumer and computer segments. UMC confirmed its 2008 capex budget is $500 to 700 million.

SMIC Exits Commodity DRAM Business

Over at Shanghai, China-based based foundry rival Semiconductor Manufacturing International Corp [SMI] (SMIC), the company announced Tuesday that its Q1 non-DRAM revenue increased by 5.5% quarter-over-quarter to $318.6 million from Q4 2007 and was 25.6% higher on a year-over-year basis from Q1 2007.

However, overall Q1 revenue decreased 8.3% sequentially to $362.4 million, and was down 6.7% from Q1 2007 due to lower DRAM shipment quantity. As a proportion of total revenue, DRAM fell to 12.1% in Q1 from 23.6% in Q4 2007, SMIC noted.

On the other hand, Q1 logic sales from 0.13-micron full-flow and 90nm technology nodes have increased by 33.5% sequentially.

SMIC's Q1 gross margin took a hit as well from DRAM and was -9%, compared to 8.9% in Q4 2007 primarily due to losses from the commodity DRAM business including a $44.5 million additional loss provision taken against the remaining DRAM inventories.

SMIC recorded a net loss of $119.1 million in Q1, including the reversal of $20.5 million deferred income tax benefits recorded in Q4 2007, as required under US GAAP, resulting in an adjusted net loss of $19 million in 2007.

During the quarter, SMIC made the decision to exit the commodity DRAM business, as an indicator of impairment in regard to the long-lived assets of the company's Beijing facility in accordance with SFAS 144.

As of Tuesday, SMIC said it has engaged an external valuer and is in the process of evaluating whether or not such assets have been impaired. Any impairment loss, if so determined, would result in an additional non-cash charge to the company's net income for Q1.

During a conference call with analysts, Dr. Richard Chang, SMIC CEO said, during the first quarter, management reached an agreement with our customers to exit the commodity DRAM business. This reduction of DRAM production and conversion of DRAM capacity into logic, which will continue throughout 2008, remains key to our strategy. As a result, SMIC made a concerted effort to reduce its DRAM foundry services by 53% from the previous quarter and 67.5% from the first quarter of 2007. At the same time, we increased logic shipments 6.2% quarter-on-quarter, and our 90nm logic shipments surged 136.8% over the fourth quarter. As DRAM as a portion of our total revenue fell to 12.1% compared to 23.6% in the fourth quarter of 2007, our overall logic revenue gained 6.5% quarter-over-quarter and 25.6% year-over-year."

"We forecast persistently strong demand in advanced technology nodes through the remainder of 2008 as we witness tremendous market demand for the devices that consume logic ICs, such as mobile baseband, multimedia processors, PDA, GPS, Flash controller IC, power management IC, MP3/MP4, DTV video processors, and mobile TV," Chang continued.

The company also noted that China has experienced exceptionally strong market growth since the beginning of the year, SMIC's China revenue increased by 22.6% since Q4 2007, and the company added 15 new domestic customers in Q1, along with a 17.1% quarter-on-quarter increase in new product tape-outs.

For Q2, SMIC expects revenue to decrease by 3 to 6% from Q1 while non-DRAM revenue is expected to grow by 3 to 6% from Q1. SMIC expects its capital expenditures to total approximately $160 to $200 million for the year.

Chartered Revenue Up, Net Income Down

Rounding out the latest round of Q1 foundry financial reports is Milpitas, Calif.-based Chartered Semiconductor Manufacturing Ltd [CHRT], which reported Q1 revenues last week of $388.2 million, up 19.9% from Q1 2007 and up 10.1% from Q4 2007.

Revenues including Chartered's share of SMP were $414.1 million, up 19.9% from Q1 2007 and up 9.6% percent sequentially.

Chartered's Q1 net income fell to $2.4 million, compared to net income of $6.3 million in Q1 2007 and net income of $5.9 million in Q4 2007.

"Chartered revenues and revenues including our share of SMP were up about 20% compared to the year ago period. Sequentially, Chartered revenues and revenues including our share of SMP were up about 10%, coming in above the high end of the guidance we had provided on March 14. Revenues from 90nm and 65nm, including both SOI and bulk technologies, grew approximately 10% compared to Q4 2007, and represented 17% of our total business base revenues. We ended the quarter with a net income of $2 million, which included income related to a licensing arrangement," commented George Thomas, senior VP and CFO of Chartered, in a statement.

For Q2, "We are guiding for double-digit revenue growth into the second quarter mainly due to incremental revenues from the recently acquired fab, Fab 3E, and higher revenues at the leading-edge technologies, resulting from the ramp of existing as well as new 65nm customer programs," he continued.

Chia Song Hwee, president and CEO of Chartered concluded, "We are encouraged by the positive signs in our business, as evidenced by the revenue growth into the second quarter. Two additional 65nm customers are expected to enter production ramp in Q2, broadening our customer base at the leading edge. We expect the momentum to continue into the latter half of the year as more products enter into production and increase the breadth of applications we serve."

By Ann Steffora Mutschler, Senior Editor - Electronic News