Mon, Dec 08, 2008 - Page 12 News List

ANALYSIS: Chipmakers struggle to make ends meet


Less than a month and a half ago, local semiconductor companies had forecast revenues would decline faster this quarter, with demand during the gift shopping season falling short of expectations.

Now, with a sluggish economy aggravating weak demand, firms desperate to cut costs are forcing employees to take unpaid leave. And, analysts fear, if economies such as the US take long to recover, it could be just the start of more drastic measures.

Local chip companies, including the major competitors, have been opting to cut back workers’ hours in response to shrinking demand. That will remain a key cost-saving measure for companies struggling through a downturn with no recovery in sight.

“For companies that need a lot of capital spending, employee payrolls should not be the key component to their costs and expenses. But small savings can still have a life-saving impact,” said Kenneth Lee (李克揚), a semiconductor analyst with Taipei-based Primasia Securities Co (犇亞證券).

At a computer memory chipmaker, for example, staff salaries generally account for just 5 percent of the cost of its products. Cutting the payroll by 20 percent will only reduce production costs by 1 percent, Lee said.

“The No. 1 goal is to save cash,” Lee said.

Cash-strapped computer memory chipmakers began reducing employees’ working hours last month after cutting output by 15 percent last quarter. A bigger output cut is planned for this quarter to ease oversupply and alleviate huge losses.

Compared with computer memory chipmakers, companies making chips for handsets and consumer electronics are under less stress, but some are on the verge of losing money as demand weakens and could turn to cost-saving measures.

Fitch Ratings has a negative rating on the semiconductor industry as the weaker macroeconomic environment may result in lower revenues for all semiconductor markets. PCs and mobile phones, which represent nearly 60 percent of global semiconductor consumption, could be especially hurt, Fitch Ratings said.

The global semiconductor industry’s revenues may fall by a rate in the high single digits next year from this year, Fitch projected, without providing detailed figures.

The nation’s biggest handset chipmaker, MediaTek Inc (聯發科), was the latest to switch to a more conservative outlook, following the world’s top contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), and the world’s two-largest chip packagers, Advanced Semiconductor Engineering Inc (日月光半導體) and Siliconware Precision Industries Co (矽品).

“The global financial storm has started to impact on demand in the emerging markets. End demand for all products is lower than expected,” MediaTek said on Thursday.

Revenue may plunge by more than 30 percent this quarter from NT$28.05 billion in the third quarter, rather than a decrease of between 9 percent and 16 percent estimated in October, the Hsinchu-based chipmaker said.

Last week, TSMC said it had asked its employees in manufacturing departments to take five unpaid days of leave a month beginning this month. In October it said spending on new equipment could drop 20 percent next year.

“The company must do its utmost to lower costs. At the same time, we will also do all we can to protect employees’ jobs,” TSMC chief executive Rick Tsai (蔡力行) said in a video address to employees broadcast online.

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