When the Chips Are Down, TSMC Delivers

Third-quarter sales fell a modest 3.3% year over year to $2.76
billion, a 21% uptick from the previous quarter. Its $0.18 of earnings
per American Depositary Share (ADS) were flat when compared to 2008,
but 25% above the second quarter of 2009. The revenue results fell at
the very top end of management guidance, and TSMC's recovery seems to
be sharply V-shaped.

Indeed, this titan of chip manufacturing is outperforming many of its own customers:

Data from Capital IQ, a division of Standard & Poor's.

That's because TSMC and its rivals, like United Microelectronics (NYSE: UMC) and soon-to-be-acquired Chartered Semiconductor Manufacturing (Nasdaq: CHRT),
live further down the food chain of the electronics industry, and thus
become leading indicators of where the industry is going. It takes time
to move a chip from the assembly line to Broadcom's inventory, so the
fabless chip designers need to plan ahead. And as you can see, they're
shoveling plenty of orders over TSMC and the other chip foundries at
the moment -- sometimes too many.

I am a longtime TSMC shareholder, and I've been known to drop the name in front of our Global Gains
analysts. TSMC dominates a business that is essential to the
electronics infrastructure of the world. The company sports massive
profit margins and just reported 27% return on equity -- and it even comes with a 4.8% cash dividend yield. What's not to love?

© 2009 UCLICK L.L.C.