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Chartered Semiconductor exemplifies the problems facing Singapore’s ailing electronics sector after warning that it will suffer its biggest loss in nearly four years when it reports its results for the last quarter of 2008.
The problem child of Temasek Holdings, the Singapore state investment company, Chartered is the world’s third-largest foundry chipmaker.
Electronics is Singapore biggest industrial sector, employing 119,000 workers, including 5,125 at Chartered, and accounting for 40 per cent of the city-state’s non-oil exports.
However, its position is declining amid falling exports and growing job losses. Chartered already has cut overtime and reduced wages and spending.
Moody’s, the ratings agency, recently downgraded Chartered to a Ba1 rating because of “heightened concern over Chartered’s operating performance and financial profile”. It said Chartered’s rating could be cut further unless Temasek injected more capital into it.
Even before the latest woes, Chartered was Temasek’s worst performing corporate asset because of its plunging market value, in spite of producing chips for popular consumer items such as Microsoft’s Xbox 360 game player.
Analysts estimate that Chartered will lose money until at least 2010, including a loss of at least $30m in 2008 and more than $200m this year.
There is speculation that Temasek, which owns 59.4 per cent of the company, could sell Chartered or merge it with a rival, such as UMC, which is also struggling. “Chartered is a potential buy for industry players,” research company DBS Vickers said in a report.
However, an industry insider said Temasek has not yet decided what it will do with the ailing company. Some analysts believe it may decide to delist Chartered by taking it private.
Singapore’s electronics exports fell by 17 per cent in November, the twentieth straight month of such declines.
“The consensus is that the [semiconductor] market weakness is likely to persist or worsen next year,” said Kevin Tan, of OCBC Investment Research in Singapore.
Kit Wei Zheng, a Citigroup economist in Singapore, warned that the economic downturn could accelerate the relocation of electronics companies from Singapore to China or Malaysia. “The competitive challenge for Singapore’s electronics sector will become more stark as China moves rapidly up the value chain,” he said.