Vanguard International Semiconductor Corp (世界先進) — which makes controller chips for LCD panels — yesterday slashed its estimate for capital spending for this year by about 23 percent as its customers’ are curtailing inventory buildup.
Citing uncertainty about end-product sales and customers’ inventory corrections, Vanguard chairman and president Fang Leuh (方略) said the chipmaker “would defer part of our capital spending to next year.”
“We expect capital spending this year to decline to NT$1.7 billion [US$53.58 million], which is NT$500 million less than our previous quarter estimate,” Fang said.
It is unclear if this downward trend is set to end in the final quarter of the year, as the company’s “order visibility is only about one-and-half months to two months,” Fang said.
Due to the bleak outlook, Vanguard expects revenue to decline between 9.6 percent and 14.5 percent to between NT$5.25 billion and NT$5.55 billion, from last quarter’s NT$6.14 billion, Fang said.
Vanguard’s forecast came after Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) — one of Vanguard’s biggest customers — issued a lackluster guidance for the current quarter, estimating that revenue would at most grow by 2.22 percent sequentially, citing longer-than-expected inventory digestion by clients.
Vanguard earns between 25 percent and 30 percent of its revenue from TSMC orders. TSMC is also the largest shareholder in Vanguard with a 28 percent stake.
The bright spot is that demand for controller chips for TV LCD panels and management chips is relatively strong, Fang said.
Gross margin is expected to slide to between 27 percent and 30 percent from last quarter’s 29.5 percent, mainly because of lower factory utilization, the firm said.
Wafer shipments would decline by about 12 percent sequentially this quarter, the company said.
The chipmaker’s downward revision to its capital expenditure this year came after it posted its lowest net profit in nine quarters.
The firm’s net profit fell to NT$1.06 billion in the April-to-June quarter, compared with NT$1.37 billion in the first quarter, its financial statement showed.
Last quarter’s figure is slightly better than the NT$1.01 billion estimated by Credit Suisse analyst Randy Abrams.
Abrams predicted Vanguard’s revenue would shrink 1.7 percent sequentially this quarter, according to a report released on July 15.
He gave an “out-perform” rating on Vanguard with a target price of NT$24, as the company’s better product lineup and sufficient cash flow would help support the stock’s downside.
Vanguard booked NT$20.67 billion in cash as of last quarter, up from NT$19.05 billion in the first quarter of this year.
Vanguard said it would not rule out the possibility of launching a share buyback program to better utilize its cash reserves, Fang said.
Commenting on the risk of an oversupply due to rapid capacity buildup in China, Fang said the supply-and-demand situation of 8-inch wafers would remain balanced over the next three to five years because no new capacity is set to join the world’s supply of 8-inch chips.
New demand is set to come from Internet of Things and automotive electronics, and Vanguard plans to invest more in those areas, he said.
Vanguard operates two 8-inch-wafer factories and one 12-inch factory.
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