S`pore Chip Firms Seen Slicing Q2 Losses, H2 Weak

July 16, 2002
Singapore Democrats

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SINGAPORE, July 15 (Reuters) – Singapore’s semiconductor firms are likely to narrow their second quarter losses, thanks to recent inventory restocking in the communications and consumer segments, but the second half of 2002 could be a washout.

A Reuters poll of five analysts showed Chartered Semiconductor Manufacturing, the world’s third largest contract chipmaker, posting a net loss of US$100.2 million to US$116 million for the three months to June 30 on Friday.

Sister company ST Assembly Test Services, which provides chip testing and packaging services, is expected to post a net loss of US$26 million to US$27 million for the same period when it unveils its second quarter earnings on July 31.

“There’s some inventory rebuilding on the wireless communications side for the recent launches of new products like mobile phones, which have led to a sequential improvement in the second quarter for both Chartered and ST Assembly,” said Daiwa Institute of Research analyst Pranab Kumar Sarmah.

Singapore-based Chartered, which lost $128.4 million for the quarter ended March 31, or 93 cents per diluted American Depositary Share (ADS), raised its second quarter guidance in May, forecasting a smaller loss per ADS of 76-77 U.S. cents.

Previous guidance was for a loss of 82 cents to 84 cents.

ST Assembly, Asia’s largest chip tester, which lost $26.6 million, or 27 cents per ADS, in the first quarter, sees 10-15 percent sequential sales growth in the June quarter.

BOOST IN UTILISATION

“Inventory rebuilding in the consumer and computer peripherals space, such as for printers and scanners, should also boost both companies’ utilisation rates for the quarter,” OCBC Investment Research research manager Gregory Yap added, referring to the rates at which production plants run.

In the first quarter, communications accounted for 23 percent of Chartered’s revenues and 55 percent of ST Assembly’s sales, while the computer segment contributed 44 percent to Chartered and 39 percent to ST Assembly.

Consumer accounted for 22 percent of Chartered’s sales and 6.1 percent of ST Assembly’s revenues.

Chartered counts U.S. computer and network equipment chipmaker Broadcom and Europe’s biggest chipmaker ST Microelectronics as its key customers.

ST Assembly’s clients include No. 1 chipmaker Intel Corp and the world’s second largest mobile phone maker Motorola Inc.

Chartered’s shares have fallen about 27 percent since the start of the year and the stock has underperformed the broader Straits Times Index by 30 percent in the last six months.

ST Assembly has risen about 11 percent since the beginning of 2002 and has performed almost in line with the STI in the last six months.

Analysts peg fair value for Chartered at between S$4.85 and S$5.50 and ST Assembly at between S$2.70 and S$4.00.

Chartered is trading at a price-to-book ratio of about two times, against about six times for rival Taiwan Semiconductor Manufacturing and about three times for United Microelectronics the world’s top and second largest microchip contract makers.

On Monday morning, Chartered shares were down four cents at S$3.64, while ST Assembly was down four cents at S$2.45.

WEAK H2 OUTLOOK

Chartered and ST Assembly’s prospects are likely to turn murkier in the second half, with many analysts expecting a limp seasonal uptick in line with profit warnings from Intel, No. 2 software firm Oracle Corp. and Apple Computer.

“The sector rebound in the second half will not be as strong as expected,” Daiwa’s Sarmah said. “While a slight pick-up may occur by year end, if you strip that out, there’s very little real recovery to talk about.”

Worries over whether the U.S. economic rebound could be sustained, due to its slumping stock markets and a stream of corporate accounting woes, have created further uncertainty.

“We’re expecting some downward momentum for Chartered and ST Assembly in the third quarter from the second, and a flat second half, where the seasonal boost will just be enough to soak up the inventory build-up in the first half of the year,” said Russell Tan, an analyst at independent research outfit Netresearch-Asia.

The five analysts polled by Reuters are expecting Chartered to post a full-year net loss of $334.8 million to $404 million, against its 2001 net loss of $384 million.

ST Assembly is seen losing between $84 million and $105 million in 2002, down from a $134.2 million loss last year.