TAIPEI, TAIWAN: TSMC, the world's largest contract chipmaker, reported its largest profit in three quarters on Thursday, beating analysts' expectations and further raising hopes the worst may be over for the tech sector.

Taiwan Semiconductor Manufacturing Co said it made a net profit of T$24.44 billion ($743 million) in the April-June quarter, better than market expectations of a T$23.3 billion profit and sharply higher than the first quarter's T$1.56 billion. TSMC's second quarter net profit was down 15 percent from the same period a year earlier.

"As a result of improved demand outlook, customers' companies launching new products, and customers' inventory restocking, (the) second quarter saw a sharp rebound in the demand for semiconductors across all applications," TSMC said in a statement.

Sales of chips used in personal computers, mobile phones and other tech buys have picked up in recent months, partly due to back-to-school demand and China's massive stimulus package, some of which has helped boost consumer spending on electronic gadgets.

This has benefitted TSMC and its smaller rivals UMC and Chartered Semiconductor, which both reported better-than-expected results.

TSMC is a key supplier to some of the world's top chipmakers such as Nvidia and AMD, and its results are closely watched as it serves as an indicator to the overall health of the industry.

The company has about a 50 percent share of the $20 billion market for custom-built chips, and some analysts expect it to make use of its leadership position to lead further consolidation within the sector.

TSMC's results added to upbeat news emerging from the sector, with rival UMC and chip giants such as Intel  and Texas Instruments giving positive outlooks on improved consumer demand.

Investors have yet to latch onto TSMC's recovery story, however, choosing instead to put their money in other growth industries such as touchscreen makers and chip designers.

TSMC shares have risen 27 percent so far this year, compared with a 53 percent advance on the benchmark TAIEX share index .TWII.

TSMC ended down 0.88 percent ahead of the results, while the main board fell 0.8 percent.¦ (Reporting by Argin Chang and Kelvin Soh; Editing by Valerie Lee and Ken Wills)