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Chartered sees chip demand rebound

"It's an ugly duckling that's in the fledgling stage of transformation. It's not yet a swan but it's not so ugly anymore."

Johnny Summers, a fund manager at Absolute Fund Managers

Chartered Semiconductor Manufa-cturing Ltd (特許半導體), Singapore's biggest maker of computer chips, said a rebound in demand may persist through next year, which would help the company break a three-year streak of losses.

"If the economic environment continues to improve and busin-esses keep turning in positive results, that will provide a very good environment for companies to invest in technology-related projects," Chartered chief executive Chia Song Hwee said in a televised interview. "This should fuel growth for the semiconductor industry into 2005."

Demand for chips began picking up in the middle of last year, and Merrill Lynch & Co forecasts global chip sales will rise 23 percent this year, followed by 16 percent growth next year.

For Chartered -- 61 percent owned by Singapore's government and with US$1.09 billion in losses since the end of 2000 -- the rebound is boosting sales of chips used in products such as cellphon-es, DVD players and disk drives.

"We've got enough drivers, whether it's new consumer goods or PCs," to push semiconductor sales, said Charles Isaac, who helps manage the equivalent of US$815 million at Swissca Portfolio Management in Zurich, including shares of Chartered. "The market environment is positive for Chartered."

Chartered's Chia didn't give a specific forecast for growth next year. Industry sales barely rose in 2002 and fell by about a third in 2001.

Chia is reshaping Chartered after being promoted from chief financial officer in June 2002. He is winning new customers such as ZTE Corp, developing a chip-development alliance with International Business Machines Corp and closing a factory, which will cut 500 jobs and may save US$25 million a year.

Investors are betting that these moves will help the company narrow the gap with larger rivals such as industry leader Taiwan Semiconductor Manufacturing Co (台積電) and stay ahead of start-up chip companies in China.

"It's an ugly duckling that's in the fledgling stage of transformation," said Johnny Summers, who helps manage US$150 million at Jade Absolute Fund Managers in London, including Chartered shares. "It's not yet a swan but it's not so ugly anymore."

Chartered said last month its first-quarter loss will probably narrow to about US$8.6 million.

"Customers remain positive," Chia said. "We're seeing a broad-based recovery."

Still, even with demand rising, Chartered has struggled to turn a profit.

Chartered, which ranks fourth in its industry, lost US$43.2 million in the fourth quarter even though it used 71 percent of its manufacturing equipment. Chia had earlier said the company could break even at 70 percent, before retreating from that target in mid-year.

"The break-even point has to be worked on," Chia said. "It's at a level we're not pleased with."
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