Thursday December 11, 2008

Chipmakers including TSMC, Chartered Semiconductor, SMIC dealt series of blows from global economic slowdown

ft.com :

The rapid loss of consumer confidence is starting to take its toll on the global technology industry, and nowhere is this more evident now than among chip manufacturers. This was underscored when Taiwan Semiconductor Manufacturing Co, the biggest contract chipmaker, issued its first cut in sales and profit forecasts in 7 years. TSMC, which commands more than half the global market for contract chip-making, said revenues in Q4 2008 could be up to 11% less than forecast.

While the woes in the semiconductor industry after the tech bubble collapsed were mainly due to over-expansion by producers, this time the trouble stems from a sudden fall in demand from the end-users of digital products. Morgan Stanley analyst Bill Lu points out that "demand continues to deteriorate and thus inventory levels are not coming down as fast as expected." This is particularly bad news for smaller players such as Chartered Semiconductor Manufacturing in Singapore or Semiconductor Manufacturing International Corp in China. Utilisation rates of their factories have dropped to 45% in Chartered's case and around 20% in SMIC's case. Macquarie's Mr Lau says "they may as well just shut down and take a three-month holiday for Chinese New Year".

- The semiconductor industry is the proverbial "canary in the coal mine". You could think of these companies as leading economic indicators. They operate under extreme conditions even in the best of times, with little margin for error. In better times now consigned to history, TSMC had its legendary bonus payouts. We can expect them to continue to lead the way, but this time round the direction is down. The race to the bottom will likely be led by the chipmakers.

See also :

1. Junk bonds : Chartered Semiconductor debt rating lowered to junk By Fitch
2. Chartered Semiconductor salary cut - all employees pay reduced by 5-10% on economic slowdown
3. Chartered Semiconductor forces block leave, stops bus services, mulls 4-day working week

(2008-12-11 22:58:20 SGT) [Biz] Permalink

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