TSMC, the world's biggest contract chipmaker, saw its smallest year-on-year sales growth in four months as demand slowed, while analysts say a new crop of smartphones and tablet PCs could spur demand next year.

TSMC and rival UMC have both flagged a flat fourth quarter but investors have recently looked beyond it to bet on new growth next year. TSMC shares hit a more than three-year closing high this week and UMC hovered at a seven-month high.

New products like tablets and smartphones should be a key driver and major chipmakers overseas would also speed up outsourcing manufacturing to foundries, said J.P.Morgan semiconductor analyst Rick Hsu.

Q4 is a bit slow but it should be a good year for foundries next year, said Hsu, who raised its 2011 earnings per share forecast on TSMC by 7 percent this week. He gave an overweight rating to both TSMC and UMC.

TSMC is trading at about 2.7 times its book value and our target is 3.9 times, and UMC is about at its book value now and our target is 1.2 times, so there's room for them to rise, Hsu said.

J.P.Morgan put TSMC's target price at T$88 per share, an upside of 26 percent from Friday's close.

Growing demand for new technology products could bode well for Taiwan's export-reliant economy next year. Taiwan's export growth met expectations in November while growth is expected to be firm as Lunar New year demand looms.

Taiwan Semiconductor Manufacturing Co Ltd (TSMC) had unconsolidated sales of T$35.72 billion ($1.2 billion) last month, up 22 percent from a year ago but slipped 4.4 percent from October, the firm said in a statement, without explanation.

On Wednesday, United Microelectronics Corp (UMC) said its November sales rose 14 percent from a year ago but scored its smallest monthly sales in five months.

On a consolidated basis, TSMC's sales totaled T$384.669 billion in January-November, up 45.6 percent from a year ago.

Graphic on TSMC/UMC combined sales in November:

Smartphone Fall