Chipmakers' factory use may decline

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world's largest supplier of made-to-order chips, and its rivals face declining factory use in the second half this year on falling demand for consumer electronics, an analyst said.

"Slowing sales in consumer products requiring advanced technology will result in declining factory utilization," said Len Jelinek, an analyst with El Segundo, California-based ISuppli Corp. Weak demand for video-game consoles and digital cameras will leave television sales to drive consumer demand, he said.

TSMC and United Microelectronics Corp (UMC, 聯電), its closest rival, will idle a 10th of their most advanced production capacity by the fourth quarter, from about 5 percent in the third quarter, ISuppli said. The two Hsinchu-based companies had more orders than they could meet in the first half this year.

UMC said chips used in consumer electronics products accounted for 32 percent of its second-quarter sales. TSMC said consumer electronics semiconductors made up 22 percent of revenue in the period.

Semiconductors used in communications products such as mobile phones accounted for the largest part of the companies' second-quarter revenue. TSMC counted on communications chips for 45 percent of its sales and UMC 44 percent.

Shipments of mobile phones, which rose about 40 percent in the first half from the same period a year earlier, will increase 20 percent in the second half, said Neil Mawston, an analyst with Strategy Analytics in the UK.

Demand for mobile phones equipped with cameras peaked in the first half, Mawston said.

The Taiwan companies were among the world's first chipmakers to start production from plants that make silicon wafers measuring 300mm in diameter. The disks more than double the number of chips that can be cut from standard-sized 200mm wafers. Such plants can cost as much as US$3.6 billion to build.

Consumer spending in the US, the world's biggest economy, rose 0.8 percent in July and incomes had the smallest increase since November 2002. Consumer spending grew at a 1 percent annual pace in the second quarter, the weakest in three years, the US Commerce Department said in July.

Sales at US retailers are likely to increase 2.5 percent in August from a year earlier, compared with previous estimates of as much as a 4 percent increase, according to the International Council of Shopping Centers, which represents mall owners.

In Japan, industrial production failed to grow in July, adding to signs of a slowdown in the world's second-largest economy. Exports fell for a second month and household spending dropped for a third month, according to the Ministry of Economy, Trade and Industry.