Macronix International gets downgrade from S&P

Standard & Poor's Rating Services (S&P) announced yesterday that it had downgraded its outlook rating of Macronix International Co (旺宏電子), one of the world's leading flash memory chipmakers, to "negative" from "stable" on weak performance.

"Although Macronix has carefully managed its capital expenditure and working capital to limit its debt level and retain liquidity, the ratings on the company are likely to come under pressure if it fails to improve its operating performance and cash flow over the medium term," S&P's credit analyst Raymond Hsu said in a statement released yesterday.

"Macronix's operating performance has deteriorated as a result of severe pressure on flash memory product prices and dated process technology, which have led to a high cost structure," Hsu said, "and these challenges are expected to continue over the next few quarters."

The rating on Macronix continues to reflect its marginal position in the flash memory industry, the capital-intensive nature of the volatile semiconductor industry, and declining demand for mask ROM [read-only memory] products, the statement said.

As market conditions remain poor in the near term, S&P said it believed that cash flow generation would remain challenging for the chipmaker.

Macronix reported earlier this week a net loss of NT$6.6 billion, or NT$1.32 per share, in the first half of this year, compared to earnings of NT$521.3 million, or NT$0.11 per share a year ago, after booking a long-term investment loss worth NT$1.5 billion caused by its investment in a fab located in Israel.

The company decided to downsize its capital by 40 percent in a bid to write off the cumulative losses amounting to some NT$20 billion, several Chinese-language news media reported Aug. 9, citing Macronix's president Miin Wu (吳敏求).

The chipmaker's paid-in capital would drop to about NT$29 billion, from NT$50 billion, after downsizing to be carried out later this year. The company planned to resume public trading of its shares on the local bourse next June, the reports said.

Unlike the rating firm, Macronix painted a rosy outlook for its future performance, hoping to break even in the current quarter, as it predicts sales to jump by at least 30 percent from the previous quarter, driven by strong end demand for communication and consumer electronics products.

The chipmaker expected its gross margin to turn positive from 5 percent to 10 percent in the period from July to next month, and the utilization rate to reach 100 percent from 81 percent during the same time.