Merrill Lynch cuts its ratings on five microchip makers

Merrill Lynch yesterday lowered investment ratings on five Asian semiconductor companies, including United Microelectronics Corp (UMC, 聯電), amid vague signs indicating acceleration in chip demand next year.

The ratings change was part of the research house's downward adjustment on Asian semiconductor companies to "market weight" from "overweight" owing to a lack of fresh products to spur demand next year, despite the industry's gradual recovery amid falling inventory.

"To push share prices further, however, we need to see the acceleration in IC [integrated circuit] demand, which our analysis shows to be merely seasonal in 2007," Merrill Lynch said in its latest report.

However, capacity expansion by the world's four big contract chipmakers, led by Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), is likely to expand by at least 13 percent next year, as the companies hinted that they would spend the capital on new equipment, Merrill Lynch said.

As a result, Merrill Lynch downgraded its rating on UMC to "sell" from "neutral." It expects UMC to swing into an operating loss in the first quarter because of sluggish demand from major customers such as Xilinx Inc.

Merrill Lynch also revised down its rating on Singapore-based contract chipmaker Chartered Semiconductor Corp to "neutral" from "buy."

The prospects of TSMC being re-rated would be low, as the chipmaker held a dominant position in the advanced technologies sector, Merrill Lynch said. It holds a "buy" rating on TSMC.

Merrill Lynch shifted its interests to computer-related stocks, including manufacturers of dynamic random access memory (DRAM) such as Powerchip Semiconductor Corp (力晶半導體).

The researcher picked Realtek Semiconductor Corp (瑞昱半導體), Richtek Technology Corp (立錡科技) and Sonix Technology Co (松翰科技) as its favorites.