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Citigroup keeps `hold' on foundries

Citigroup Global Markets Inc researchers yesterday maintained their "hold" rating on regional foundry stocks, including shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), citing sluggish business from Texas Instruments Inc.

Shares of TSMC rose 1.49 percent to close at NT$61.50 on the Taiwan Stock Exchange yesterday, while smaller rival United Microelectronics Corp (UMC, 聯電) gained 0.74 percent to close at NT$20.55, underperforming the 1.51 percent increase in the benchmark TAIEX.

UMC's announcement earlier yesterday of a joint development program with Japan's Elpida Memory Inc for advanced DRAM production technology also provided partial support to its share price.

Semiconductor Manufacturing International Corp (SMIC, 中芯), China's biggest supplier of made-to-order chips, remained steady at HK$0.95 (US$0.12) in Hong Kong, compared with a 3.51 percent rise on the Hang Seng index.

"We see TI's flattish projection as not so exciting for its foundry suppliers like TSMC, UMC and SMIC ... in the fourth quarter of 2007 and first quarter of 2008," Andrew Lu (陸行之), an analyst with Citigroup Global Markets in Taipei, wrote in a report.

On Monday, Texas Instruments, the largest maker of mobile phone chips, reported its net income rose 10.55 percent year-on-year to US$776 million in the third quarter, driven by increased demand for analog chips.

But the US company's fourth-quarter sales forecast of between US$3.4 billion and US$3.68 billion is lower than analysts' predictions, the report said.

"Consistent with TI's fourth-quarter semiconductor sales projection, we believe TSMC, UMC and SMIC will all see downward adjustments on recent orders from wireless customers," Lu said.

Meanwhile, MediaTek Inc (聯發科技), the world's top maker of chips for DVD players, is poised for further upside momentum, driven mainly by sales of chips for mobile phones, the analyst said in the report.

"MediaTek gained shares from TI by reporting 44 percent quarter-on-quarter sales growth in the third quarter," Lu said.

Shares of MediaTek surged 5.08 percent to NT$620 yesterday.

Lu said he expected MediaTek to lead fourth-quarter growth for the handset IC business.

That momentum should benefit other chip-related stocks, such as Siliconware Precision Industries Co (矽品精密), Advanced Semiconductor Engineering Inc (日月光半導體), King Yuan Electronics Co (京元電子) and Kinsus Interconnect Technology Corp (景碩科技), the report said.
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