Tue, Jul 13, 2004 - Page 10 News List

Chipmakers stuck with lower ratings

DOWNGRADE Analysts across the board have been disappointed with demand in industries that are related to chipmaking, and local makers are feeling the pain


Merrill Lynch & Co yesterday lowered its ratings on the local contract chipmakers Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Co (UMC, 聯電) as part of an overall downgrade of the semiconductor sector on slowing profit growth.

The US investment bank lowered its ratings on TSMC and UMC from "buy" to "neutral" on higher risk of a downward adjustment in the semiconductor business.

"We think that we're closer to a peak in margins and earnings than we previously expected," Merrill Lynch analysts said in the latest report.

In the report, Merrill Lynch downgraded the global semiconductor industry -- including Intel Corp and some chip-equipment suppliers -- from "overweight" to "underweight."

rash of downgrades

Merrill Lynch's move marked the latest in a rash of sector downgrades. Similar moves have already been made by Lehman Brothers Inc, Deutsche Bank Securities Inc and Morgan Stanley.

"We believe that the risk of ASP [average selling price] comparisons turning negative before the end of the year is increasing," Merrill said.

On the local bourse, TSMC shares fell by 2.61 percent to NT$44.80 after Merrill Lynch released the report. UMC stocks dropped a similar 2.06 percent to close at NT$23.8.

Analysts are also concerned about whether enough inventory rebuilding will occur upstream to support the industry's growth.

seasonal demand

"The key is whether end users' demand will be strong enough to drive growth," said Richard Liu, an analyst with ABN-AMRO Asset Management in Taipei.

"But signs show that anticipated seasonal demand might turn out to be disappointing."

In the second quarter, demand for electronic devices, including digital cameras and computers, has fallen short of industry estimates, Liu said.

That in turn has given analysts reason to question how quickly demand will spread to the chip sector, he added.

"The demand for notebook computers looks okay. The industry is still trending up, but what worries us is how strong the second half will be," said Frank Chi (紀鈞中), an analyst with Grand Cathay Securities Co (大華證券).

tepid growth

Chi said he would settle for 20-percent growth in the second half of the year compared to the first half, a far cry from the 50-percent jump that Compal Electronics Inc (仁寶電腦) forecast.

Compal aimed to ship 8 million laptop computers this year, while Chi only expects 7 million shipments -- 13 percent lower.

Tepid growth, compared to forecasts, is also predicted for the digital camera segment.

Digital camera suppliers said unit shipments would turn out to have risen at an annualized 20 percent during the second quarter, a rate slower than the average 30 percent registered in the past, said Meg Lin, an analyst with researcher Market Intelligence Center (MIC, 資訊市場情報中心) in Taipei.

"We feel that demand is more sluggish than expected. Some companies said they expect to report an unusually flat second quarter, when shipments should be taking off," Lin said.

Local digital camera makers, which supply nearly 40 percent of the global market, are expected to ship around 4.74 million units in the second quarter, compared to 3.95 million a year ago, according to MIC's initial tally.

Also see story:

TSMC leads decline on TAIEX following Merrill Lynch rating

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