Taiwan Semiconductor Manufac-turing Co (台積電) and United Microelectronics Corp (聯電), the two largest made-to-order chipmakers, may lose money in the second quarter, says Merrill Lynch & Co.
Analyst Dan Heyler Heyler, who sent TSMC and UMC's shares down more than 3 percent in November when he cut his recommendation on the stocks to "accumulate" from "buy," is bearish at a time most analysts expect the worst has passed.
"Revenue numbers aren't meeting expectations, and unless at an operating level they are able to cut expenses at a faster rate, they will record a loss in the second quarter," he said.
Heyler identified slowing orders from mobile phone companies as the main cause for his downgrade in November. Eight months later, he says demand from communication, consumer electronic and computer companies still may not pick up until late in the third quarter.
And this probably means utilization rates at TSMC and UMC's factories will remain around 50 percent, or half the production capacity, he said.
UMC's Deputy Chairman John Hsuan (宣明智) said last month the company's utilization rate was 50 percent and it was trying to cut costs in order to remain profitable. Though TSMC Spokesman Tzeng Jinnhaw (曾晉皓) wouldn't comment on what the company's second-quarter earnings may be, its revenue is shrinking.
TSMC's sales fell 22 percent in May from a year ago and 7.4 percent from April to NT$8.6 billion. UMC's sales in the period fell 40 percent on year and 15 percent from the previous month to NT$5 billion.
Heyler's got his detractors. William Dong, a director at UBS Warburg Securities Ltd in Taiwan, expects a recovery in demand will probably be driven by consumer electronics and computer companies.
"I expect a slight pick-up of demand in June. May is typically the weakest month," he said.
Some investors are similarly optimistic.
Ingrid Cheng, who helps manages NT$14 billion (US$411 million) in Taiwan stocks at Grand Pacific Securities Investment Trust Co (
"July, August and September should show an improvement from the second quarter," Cheng said. "Second-quarter sales were the trough in the slowdown." Even those who agree the second quarter represents the bottom, however, are reluctant to call a rebound by year's end.
The global semiconductor industry will not see a turnaround until the second half of 2002, said Ken Chang, an analyst at China Securities Co (
"The second half will improve because of the traditional good season, but it doesn't mean the fundamental situation is getting better," Chang said.
"Next year, it'll still get worse in the first half because of the traditional slow season. The second half of 2002 will improve strongly."
Heyler forecasts TSMC's shares will trade between NT$85 and NT$95 over the next month and UMC between NT$45 and NT$55 during the same period.
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