Chip industry emerging from slump

A slew of healthy third-quarter results in Taiwan's semiconductor industry last week and bullish forecasts from senior officials at those companies are indicators that the local chip industry is finally recovering from a three-year slump.

"A recovery is already underway," said Alfred Ying (應宗傑), an analyst at BNP Paribas in Taipei. "We are very positive for 2004."

The world's two largest manufacturers of made-to-order semiconductors reported soaring profits last week. On Tuesday, industry leader Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) announced its profits increased fivefold in the three months to Sept. 30 from NT$3.16 billion last year to NT$15.17 billion this year, while smaller rival United Microelectronics Corp (UMC, 聯電) saw its profits triple from NT$1.4 billion to NT$4.2 billion over the same period, the company said on Wednesday.

TSMC chairman Morris Chang (張忠謀) told investors last week that his company is leading the recovery, and he upped his forecast for industry growth from 10 percent to 14 percent next year. Chang's mood was much lighter than it has been for many months, as he cracked jokes and poked fun at analysts.

Most forecasts -- including those from US-based researchers International Data Corp (IDC) and Gartner Inc -- still lag Chang's and call for around 10 percent growth in the semiconductor industry next year.

Taiwan leads the world in manufacturing semiconductors for global corporations on a contract, or original equipment manufacturing (OEM), basis. Healthy order books here mean global technology companies are bullish on higher sales of their products.

"What is probably more important is that it seems like business confidence is recovering," Chris Hsieh (謝偉民), a chip-industry analyst with ING Securities Ltd in Taipei, said last week.

Smaller chip companies have also seen healthy rises. Mediatek Inc (聯發科技), which makes chips for DVD players, said its third-quarter profits rose 73 percent on Thursday from NT$2.6 billion to NT$4.5 billion. Even memory chip manufacturer ProMOS Technologies Inc (茂德科技) -- which had a falling out with its leading investor Infineon Technologies AG earlier this year forcing the Germans to pull out of the partnership -- changed its forecast on Wednesday for a full-year loss of NT$1.2 billion this year to a profit of NT$361 million, based on stronger sales.

Computer hardware companies here are also smiling. Last week Acer Inc, BenQ Corp (明基電通) and Asustek Computer Inc (華碩) all reported bigger profits.

But experience has taught industry watchers not to be overoptimistic about good results. A small peak last spring led to a frenzy of buying that petered out in the second half of the year. While the industry managed to grow around 1 percent from a drop of more than 30 percent in 2001, the result fell well short of the double-digit growth of the 1990s.

"TSMC is the first to come back to 2000 levels, but this does not necessarily mean that the whole industry has come back," said Abraham Lu (呂因彰), a chip-industry analyst at HSBC Securities in Taipei. "Overall the consumer sector is stronger, especially products like DVD players, handset cameras or digital cameras. But the personal computer segment is not showing strong demand. PC chips account for 40 percent of total consumption, so this is not a full recovery," he said.