Fri, Aug 15, 2003 - Page 11 News List

Chartered Semiconductor studies chip demand

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Chartered Semiconductor Manu-facturing Ltd (特許), the world's fourth-largest provider of made-to-order chips, is reassessing demand for more advanced chips, which may lead it to delay opening its new factory again, analysts said.

Chartered Semiconductor, based in Singapore, earlier delayed opening its Fab 7 factory by a year to the third quarter of next year after striking an agreement that allows it to use manufacturing capacity at a plant owned by International Business Machines Corp.

It may push back opening the factory again, as demand for cutting-edge chips is still limited because costs are too high, analysts said.

Chartered Semiconductor also plans to model its factory after IBM's, which isn't operating at optimal efficiency yet, they said.

"There could potentially be a delay," said Warren Lau, an analyst with HSBC Securities, who rates the shares "add."

"Chartered doesn't seem very sure about how they want to proceed with Fab 7," he said.

Chartered Semiconductor officials declined to comment on the possibility of further delays.

"Any further updates on Fab 7 will be communicated at an appropriate time," company spokeswoman Maggie Tan said.

Plans to open the factory in the third quarter of next year were made based on the company's last evaluation of the chip industry, Chartered Semiconductor said in a filing with the US Securities and Exchange Commission.

"The company is currently reassessing market demand,"its filing said.

The factory may cost US$3.5 billion to fully equip.

Chartered Semiconductor has been unprofitable for the last 10 quarters.

The new factory is intended to make chips with transistors .090 micron, or 90 nanometers, apart and on 300mm wafers.

Chartered's most advanced products now are 0.13 micron chips made on 200mm wafers. Smaller chips consume less electricity and can perform more functions.

"There is not a lot of demand" for .090 micron chips, said Pranab Kumar Sarmah, an analyst with Daiwa Institute of Research, who rates the shares "hold."

"The development cost is very expensive," he said.

As the costs of materials come down, the chips will become increasingly popular in 2005 and beyond, Sarmah said.

Chartered Semiconductor's IBM agreement allows it to use capacity in the latter's East Fishkill, New York-based factory, which opened in July last year.

It will also model Fab 7 after IBM's plant, which may be running into some manufacturing problems, Lau said.

About half the chips made at the factory are unusable and its capacity is less than half of the company's final goal, Lau said.

Chartered Semiconductor may want to wait until IBM improves its manufacturing systems before ramping up its own factory, he said.

Chartered Semiconductor would need to start ordering equipment and moving equipment into the new factory about six months before it opens, Sarmah said.

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