Chartered Semiconductor Manu-facturing Ltd hasn't had much to brag about lately. Factories are working at less than half capacity, management has been replaced and it expects a loss of US$87 million this quarter.
So why did the third-largest supplier of made-to-order chips ask shareholders this week for more money to build new plants? The answer, investors say: to keep pace with rivals such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電), whose factories are humming.
"They have to run just to stay in third," said Henry Lee, a money manager at the Hendale Group Ltd, which manages about US$80 million. Chartered Semiconductor must "continually keep putting money in" to maintain its business, he said.
Chartered Semiconductor shares its dilemma with other chipmakers. To stay on top, the biggest suppliers of made-to-order chips are investing billions of dollars on new plants to produce chips from silicon wafers measuring 12 inches or on equipment to etch ever-finer circuit features.
The Singapore-based company, 60 percent owned by Singapore Technologies Group, a government agency, plans to sell stock to its shareholders at a 52 percent discount to the Aug. 30 share price, the last trading day before the sale was announced.
The plan didn't go down well with some investors. The Singapore stock exchange said yesterday it is investigating trading in Chartered Semiconductor's shares after they fell 18 percent in the week before the sale's announcement. A shareholders' advocacy group has also asked for an explanation.
The company aims to raise US$633 million for a new factory.
Singapore Technologies agreed to invest US$380 million.
The offering would bring to about US$2.2 billion the amount that Chartered Semiconductor has raised since it first sold shares to the public in October 1999.
Chartered Semiconductor shares plunged 24 percent on Sept. 2, the day the sale was announced, bringing the stock's loss to 67 percent so far this year. The stock is vying with Datacraft Asia Ltd, which is being investigated for insider trading, to rank at the bottom of the Straits Times Index this year.
Investors and analysts are doubtful that money for new factories makes much sense right now. Chartered Semiconductor's spending on plants and equipment has exceeded operating cash flow for at least five years as it races to catch up with competitors.
"They're just constantly consuming cash," said Russell Tan, an analyst at NRA Capital's Net-Research Asia, who has rated Chartered Semiconductor "sell" since October. "It's going to be really difficult, even with this large amount of money."
The state of the chip industry isn't much help either. Chip sales dropped by a third last year to US$155 billion, according to market researcher Dataquest Inc, making 2001 the worst year in the industry's 40-year history.
This year doesn't look any better. The Semiconductor Industry Association expects chip sales to grow just 3 percent in 2002, it said this month.
Even analysts predicting a return to profitability for Chartered Semiconductor in 2004 may be optimistic, said Jeremy Whitley, an investment manager with Edinburgh Fund Managers, which manages about US$400 million in Asia, excluding Japan.
With cash of US$831.4 million and an untapped credit line of US$620 million, the company's decision to seek money now suggests it doesn't believe chip demand will pick up anytime soon, Tan said.
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