Chipmakers still a risky purchase

Most of Asia's chipmakers reported better earnings in the last quarter. With a few exceptions, that doesn't mean their shares are going to rise.

The reason, investors say, is because the region's chipmakers, including South Korea's Samsung Electronics Co and United Microelectronics Corp (UMC, 聯電), rely heavily on the computer market, which shows few signs of a rebound.

"Investing in chipmakers is risky because there's no clear sign of recovery," said Katsuaki Furutachi, who helps manage about ?150 billion (US$1.3 billion) in Japanese equities at Asahi Life Asset Management Co. He doesn't own any chipmakers' shares and doesn't intend to buy them. "I can't be bullish yet."

Investors say a more promising investment in semiconductors may be outside the personal-computer market. Among the best bets are companies such as Japan's Toshiba Corp and Sanyo Electric Co, which have begun churning out more and more chips for devices such as digital still cameras, game consoles and mobile phones.

Underscoring that sentiment, Sanyo last week said it posted a fiscal third-quarter profit of ?2.67 billion compared with a ?6.72 billion loss a year ago.

The reason for the rebound, the world's biggest maker of mobile-phone batteries said, was strong demand for cellular phones with built-in cameras and the components that go into them, especially a type of semiconductor called a charge-coupled device.

Demand was so strong for CCDs -- Sanyo's sales of the image-capturing chips surged 12-fold in the three months ended Dec. 31 -- that Sanyo has promised to spend Y45 billion in the next three years to increase production.

Even Sanyo's results failed to cheer investors. Sanyo's shares yesterday fell as much as 2.1 percent to ?333 before rebounding to a gain of 1.8 percent at the 3pm close on the Tokyo Stock Exchange.

Pessimism over the fortunes of Asia's chipmakers, which accounted for 53 percent of worldwide semiconductor sales in 2001, comes amid growing doubts about the strength of the PC market.

Shares of Samsung Electronics, the world's No. 1 memory-chip maker, have fallen 10 percent since the company said its fourth-quarter profit almost quadrupled.

The biggest worry for Samsung Electronics' investors: the company, which dominated the US$12 billion memory-chip market in 2001 with a 27 percent share, expects an oversupply of dynamic random-access memory chips in the first quarter this year. DRAM chips act as the main memory in personal computers.

Sending another negative signal about the PC market, Intel Corp, the world's largest chipmaker, earlier this month said it's unable to tell whether PC demand is recovering. Sony Corp.

followed by cutting its Vaio computer shipment target for its fiscal year ending March 31 by almost a third.

Even suppliers of made-to-order chips such as UMC and Singapore's Chartered Semiconductor Manufacturing Ltd are becoming less optimistic about the industry's outlook.

UMC, the world's second-largest supplier of made-to-order chips, doesn't expect to make a profit from chips in the first quarter because its factory-use ratio will probably drop, Chairman Robert Tsao said.

"The era of high margins for the current foundry model is gone forever," Tsao told reporters in Taipei last week. "Even the world's largest player can't fight this fate."

Taiwan is home to two of the world's three largest made-to-order chipmakers, or so-called foundries, companies like Taiwan Semiconductor and Chartered that make chips for a broad range of customers across the industry's spectrum.