Investors skeptical on Macronix future

Macronix International Co (旺宏電子) has recently regained media attention amid improving fundamentals and a mounting management war in the board room, but investors remain skeptical about its future.

"It is true that Macronix's earnings are improving, but the strong growth will be capped by weaker cost-saving abilities in the long term," said Liu Szu-liang (劉思良), a semiconductor analyst with Yuanta Core Pacific Capital Management (元大京華投顧).

Macronix flash memory chips that retain data even when the power is switched off. Its chips are primarily used in game consoles such as those made by Japan's Nintendo Co.

The company now operates a less advanced 8-inch semiconductor fabrication plant after selling a vacant 12-inch plant to major shareholder Powerchip Semiconductor Corp (力晶半導體) for NT$5.3 billion (US$159 million) last year.

Despite rising proxy battle between chairman Miin Wu (吳敏求) and Powerchip, shares of Macronix have been trading in a narrow range between NT$13 and NT$14 on the Taiwan Stock Exchange over the last few months. It closed at NT$13.65 on Friday.

"A growing number of clients called recently requesting comments on Macronix," Liu said. He said he told investors to stay on the sideline.

Liu investors were mainly curious about Macronix's forecast for doubled earnings this quarter and a potential shake-up in the management after the general shareholders' meeting in late June.

Macronix NT$550 million, or NT$0.2 per share, in net income for the first quarter, while bigger rivals such as Samsung Electronics Co suffered losses due to price erosion.

Under rein of Wu, Macronix apparently is on track for a stable future after pick up in demand and an approximate 50 percent capital reduction.

Within past decade, the company was once a red-hot stock, with its shares peaking at NT$105 in mid-2000 due to strong profitability. But, Macronix was later severely battered by the depression in the semiconductor industry in 2002 like most companies in the sector.

Unlike peers, Macronix took much longer to recover from the downturn and only returned to the black in the second quarter of last year, which has made investors wary of sinking their money into the chipmaker.

The shares hit an historical low at NT$2.98 in September 2005 due to poor profitability.

But, investors are now refocusing on Macronix's boardroom fight Powerchip seeks new technology support after partner Reneses Technology Corp decided to pull out of the market.

In a letter published on the front page of a Chinese-language newspaper last week, Wu urged shareholders to support the existing management's effort to fend off Powerchip's attempt to gain control of the 15-member board.

Wu Powerchip only aimed to obtain Macronix's patents and technologies and it could seek its own benefits at the expense of company's future cooperation with overseas partners.

To fight back, Powerchip said it would not rule out the possibility of taking legal action against anyone for slandering the company's reputation and published a statement on Saturday requesting for proxy votes.

Powrchip, the biggest shareholder of Macronix with 5.34 percent share, said earlier last week it has eight board nominations as it has the right to represent itself in the board. Macronix's management team currently holds around 4.85 percent stake in the firm.