Chip losses to even out: Merrill Lynch

"The business starts to kind of improve. This is important. I think the business is okay, but I'd like to see the supply chain get into kind of lower inventory in the down-cycle."

Dan Hyler, Merrill Lynch semiconductor analyst

Losses Asian contract chipmakers are expected to even out this quarter, largely helped by improving inventories, and some blue-chips may rebound in share price, investment bank Merrill Lynch & Co said yesterday.

The Merrill Lynch research team made the comments after talking to local firms, mostly in the electronics manufacturing industry, during an annual investment forum in Taipei. Some 130 local firms joined the three-day event.

"The second quarter will be the bottom [for contract chipmakers]," Merrill Lynch semiconductor analyst Dan Heyler said at a media briefing.

That would also mean the share prices of some "good quality" companies were poised to bounce bank from the trough, said Heyler, who declined to name the firms.

He said that the companies participating in the forum had briefed both investors and analysts that they did not see excessive inventory overhang on customers.

"The business starts to kind of improve. This is important. I think the business is okay, but I'd like to see the supply chain get into kind of lower inventory in the down-cycle," Heyler said.

Merrill Lynch recently raised the semiconductor sector back to "market-weight" from its "under-weight" rating last August.

In November, the investment bank significantly cut the target price of most chipmakers, including Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world's biggest contract chipmaker, by more than 20 percent.

TSMC were unchanged yesterday at NT$59.9, while rival United Microelectronics Co (UMC, 聯電) jumped 3.27 percent to NT$17.35 after the company said it planned to raise its payout for last year.

But, for computer memory chipmakers, the hard times are not over yet.

"The [overcapacity-driven] downturn is longer than expected," said Simon Woo, another semiconductor analyst with Merrill Lynch, which is negative on the sector.

Woo this time the downturn, which began early last year, might last for one or two years. A mild recovery would arrive in the second half of this year, he said.

But the strength may not be big enough for most dynamic random access memory (DRAM) chipmakers to break even by the end of the year, Woo said.