* Q1 net profit T$36.3 bln in line with forecasts
* Sees Q2 sales slightly up
* Smartphones, tablets top growth sectors: CEO
* Sees Japan quake impact negligible (Adds details, analyst comment)
By Argin Chang
TAIPEI, April 28 (Reuters) - TSMC , the world's biggest contract chipmaker, forecast a slight rise in sales in the second quarter after a second consecutive decline in quarterly profit, looking to the fast growing smartphone and tablet PC sectors for growth.
TSMC and cross-town smaller rival UMC are battling tepid demand for notebook PCs, and have seen quarterly profits decline since the second half of last year as inventories at customers rise.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC) has cut its growth forecast for the world's chip industry to 4 percent from 7 percent, but said on Thursday it anticipated strong growth in the smartphone and tablet PC sectors.
"Smartphones and tablets are the new killer apps, they will be the fastest growth sector in the next two years," Chairman and CEO Morris Chang told a briefing, adding that for each of the devices sold, TSMC earns $6 to $7.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC), which supplies chips to clients including Texas Instruments and Nvidia , reported a net profit of T$36.3 billion ($1.26 billion) in January-March.
That compared with T$33.66 billion a year ago and T$40.72 billion in the fourth quarter.
TSMC was expected to earn T$36.6 billion in the first quarter, according to the average estimate of 14 analysts polled by Thomson Reuters I/B/E/S.
It left its 2011 capital spending forecast unchanged at T$7.8 billion. It forecast second-quarter operating profit margin at 33.5 percent to 35.5 percent and gross profit margin at 45.5 percent to 47.5 percent.
In the first quarter, its operating margin was 37.2 percent and gross margin 49 percent.
"The growth momentum for TSMC and UMC in Q2 is rather mild, less than 10 percent growth Q/Q," said Andrew Deng, an assistant vice president at Taiwan International Securities, noting the traditional low season for tech firms and lingering concerns over the effects of Japan's earthquake and tsunami.
"The biggest driver for TSMC's Q1 profits comes from Nvida and Qualcomm for mobile handsets and tablet PCs."
MINIMAL JAPAN QUAKE IMPACT
Analysts have cautioned disruptions to raw material supplies after Japan's earthquake in March could hurt the company.
Many have trimmed full-year earnings estimates for TSMC and UMC on a likely supply shortfall in blank wafers and other key materials used in smartphones and tablets.
Moreover, if clients rushed in orders after the quake in an attempt to hoard inventory, that could lead to even bigger excess supply in the second half of 2011, analysts have said.
Chang said that there may be some impact on its clients in the second quarter but not in the second half.
"Based on my past experience, pent-up demand often snaps back, that's why I'm pretty optimistic," he said. United Microelectronics Corp (UMC) also reported a second consecutive quarterly drop on Wednesday and said its profit and sales outlook for the June quarter would be more conservative than previously expected because of the earthquake.[ID:nT8E7FE02E]
Separately, TSMC's board approved a proposal on Wednesday to transfer its solar and solid slate lighting businesses into two new subsidiaries, valuing them at up to T$12.5 billion and T$2.8 billion, respectively.
Chang said on Thursday the units may list in a few years.
TSMC shares have gained more than 3 percent so far this year versus a 1 percent rise in the Taiwan market . UMC shares have lost about 6 percent during the same period. (Additional reporting by Faith Hung and Clare Jim; Editing by Vinu Pilakkott and Ken Wills)