Fri, Jul 25, 2014 - Page 14 News List

Success may not transfer to chip firms

By Kevin Chen  /  Staff reporter

Despite sales for last month remaining strong for most upstream companies in the nation’s semiconductor sector, leading chip packaging and testing firms may face headwinds in the near term, JPMorgan Securities Ltd said yesterday.

The brokerage’s warning came after many semiconductor companies from downstream to upstream made positive comments about their order visibility at annual general meetings, boosting investors’ expectations toward the firms’ business outlook in the second half of the year.

In Taipei trading for instance, shares in Advanced Semiconductor Engineering Inc (ASE, 日月光), the world’s biggest chip packager, have risen 36.82 percent since the beginning of this year, and its domestic rival, Siliconware Precision Industries Co (SPIL, 矽品), saw its shares increase 30.34 percent over the period.

In comparison, the Taiwan Stock Exchange’s data showed that the broader market has expanded 10.64 percent so far this year.

JPMorgan advised investors to take profit and wait for a better re-entry point, as both ASE and SPIL’s share prices have approached their six-year high levels.

“We believe OSAT [outsourced assembly and test] industry consolidation is unlikely to materialize as emerging Chinese vendors are more likely to acquire STATS ChipPAC,” JPMorgan analysts, led by Gokul Hariharan, wrote in a research report.

Singapore-based STATS ChipPAC Ltd said in May it was seeking interested parties to acquire all its shares, with ASE rumored a likely buyer. However, JPMorgan said it appears that Chinese firms such as Jiangsu Changjiang Electronics Technology (JCET, 江蘇長電) are more likely to acquire STATS ChipPAC.

The brokerage said if JCET were to buy STATS ChipPAC, this would create a new competitor and result in a potential pricing war in the advanced packaging market, with SPIL facing more impact from this threat.

JPMorgan said another potential headwind is the heavy investments in wafer-bumping capacity by major companies such as SPIL and Amkor Technology Inc.

Taiwan Semiconductor Manufacturing Co (台積電) has also been moving into this field aggressively in recent years, the brokerage said. That could lead to oversupply from the second half of next year.

In addition, there is the inventory issue again this quarter after the inventory restocking completed last quarter. JPMorgan said the inventory may peak this quarter, followed by two quarters of adjustments beginning next quarter.

As a result, the brokerage downgraded its investment rating on ASE to “neutral” and SPIL to “underweight.”

Yesterday, ASE shares fell 4.53 percent to close at NT$37.9 and SPIL dropped 1.28 percent to NT$46.4.

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