* Q1 profit down from record Q4, strong domestic currency hurts
* TSMC sees continued strength in Taiwan dollar in Q2
* TSMC not participating in talks to buy Toshiba's chip business (Adds further comments)
By J.R. Wu and Jess Macy Yu
TAIPEI, April 13 (Reuters) - Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker and a major supplier to Apple Inc, said its quarterly profits were hit by a strong local currency and cautioned it expected this trend to continue.
Taiwan's exporters have been hurt by the strong currency, which is the third best performing currency in Asia so far this year, just behind the South Korean won and the Indian rupee.
TSMC expects the Taiwan dollar to appreciate by 2.1 percent in the second quarter, dragging its revenue down by the same rate over the period and reducing its gross margin and operating margin by about 85 basis points, Chief Financial Officer Lora Ho said at an earnings conference on Thursday.
TSMC's revenue is fully denominated in U.S. dollars, but for reporting purposes it is quoted in Taiwan dollars, Ho said. This means an appreciation of the latter against the greenback has a one-to-one correlation to revenue, she said.
Regarding the possibility of the company bidding for Toshiba Corp's memory chip business, TSMC said it was not participating in talks after reviewing it with interest.
"We did not find a clear synergy," Ho said.
In early March, a TSMC spokeswoman said the company was looking at the troubled Japanese conglomerate's chip business but had yet to make any decision on whether to bid.
For the first quarter ended March, TSMC's profit rose 35.3 percent, below estimates, after revenue missed guidance.
Net profit hit T$87.63 billion ($2.90 billion) for the quarter, traditionally a weak period for the tech sector after the year-end sales rush. That missed the T$88.26 billion median analyst estimate in a Thomson Reuters/Eikon poll.
The result was also down from the T$100.2 billion of the fourth quarter of last year, which was a quarterly record.
Gross profit margin was 51.9 percent while its operating margin was 40.8 percent.
Earlier this week, TSMC said first-quarter revenue, at T$233.91 billion, missed the lower end of its guidance of between T$236 billion and T$239 billion given in January due to a strong Taiwan dollar.
$1 = 30.2260 Taiwan dollars Editing by Christopher Cushing and Himani Sarkar