Tue, Jan 25, 2005 - Page 10 News List

Chip firms may see slower growth

RESEARCH REPORT Faster growth in factory capacity combined with slower demand may curb expansion, while Chinese start-ups also pose a threat, the IEK said

By Lisa Wang  /  STAFF REPORTER

Growth in local semiconductor companies and their international rivals will slow this year if demand stagnates due to weaker economies and dwindling corporate spending on hardware, a local research house said yesterday.

On top of declining demand, aggressive capacity expansion last year could spell trouble for semiconductor manufacturers in absorbing additional product, said the government-backed Industrial Economics and Knowledge Center (IEK, 經資中心) in its latest report.

"Faster capacity growth and weaker demand would check growth this year," IEK analyst James Huang (黃俊勛) said yesterday.

Local semiconductor firms may only see anemic growth this year of around 14 percent, to NT$1.28 trillion, compared with NT$1.11 trillion the previous year, according to IEK's projections.

The foundry business, which makes up a bulky 40 percent of Taiwan's total chip industry by production value, should grow 15 percent to NT$45.31 billion.

In addition to the industrial slowdown, IEK also warned of a growing threat from Chinese semiconductor start-ups such as Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路).

China's largest contract chipmaker is slashing chip prices by up to 20 percent to snare customers from Taiwan's companies, including Taiwan Semiconductor Manufacturing Co (台積電), after an aggressive, US$1.55 billion capacity expansion last year, IEK said.

"They need to fill up capacity on the new production lines to offset heavy-equipment amortization," IEK analyst Eric Jain (簡志勝) said.

The annual growth rate for Taiwan's semiconductor companies may look small compared with last year's expansion. The increase, however, would still outstrip the global chip industry, which may see only 1.2 percent expansion, Jain said, citing data from World Semiconductor Trade Statistics.

Huang identified subdued replacement of personal computers as a crucial factor behind the industry-wide slowdown.

"Aggressive computer replacement from enterprises, which gave a boost to the global chip industry last year, is coming to an end this year," Huang said.

Corporate IT spending is expected to increase 5.4 percent annually to US$2.59 trillion this year, slower than a 7.3 percent expansion last year, according to projections by market researcher Gartner Dataquest.

On the consumer front, corporations are also inclined to tighten their purse strings in expectation of slower economic growth, he added.

"Lukewarm Christmas retail sales serve as a precursor of people being cautious in spending on electronic devices," Huang said.

Last year, Taiwan's semiconductor companies reported a 36 percent jump in production value from 2003, helped by demand for computers and mobile phones, IEK said.

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