Mon, Aug 13, 2018 - Page 15 News List

Vanguard sets aside 12-inch fab plan

REDIRECTING FUNDS:Scrapping a plan to buy or build a 12-inch fab is not bad for Vanguard’s free cash flow, but it takes the firm back to square one, an analyst said

By Chen Cheng-hui  /  Staff reporter

The downside risk for Vanguard International Semiconductor Corp’s (VIS, 世界先進) cash dividend plan next year is no longer a concern for investors, as the specialty integrated circuit (IC) foundry service provider has withdrawn its 12-inch (300mm) fab expansion plan, an analyst said.

“The [Vanguard] stock suffered from selling pressure in the first half of 2018, as investors were concerned about dividend downside after its 300mm fab investment was announced. This is no longer a concern,” Maybank Kim Eng Securities Ltd semiconductor analyst Stefan Chang said in an investment note on Tuesday last week.

Vanguard specializes in LCD driver ICs and logic ICs, as well as power management ICs and complementary-metal-oxide semiconductor image sensors.

The Hsinchu-based firm had said it might buy or build a 12-inch fab, as all 8-inch fabs were essentially full amid growing demand for ICs for artificial intelligence applications, cloud data centers, automotive electronics and Internet of Things devices.

However, Vanguard chairman Fang Leuh (方略) told an earnings conference on Tuesday last week that the company has canceled the plan after considering the vast funds and the long construction period involved, as well as the challenge of finding new customers.

“The board of directors has agreed to redirect the funds and fully support the company’s 8-inch fab expansion,” Fang said in a recording of a conference call posted on the company’s Web site.

With plenty of funds available and the company’s healthy earnings showing this year, Vanguard might be able to increase next year’s cash dividend from this year’s NT$3, analysts said.

“The termination of the 12-inch fab plan is not a bad thing from a free cash flow or depreciation cost angle, but at the same time, it is back to square one, and some might continue to wonder how VIS can sustain its long-term growth,” Yuanta Securities Investment Consulting Co (元大投顧) analyst George Chang (張家麒) said.

Vanguard on Tuesday last week forecast that revenue this quarter would reach NT$7.6 billion to NT$8 billion (US$247.5 million to US$260.5 million), gross margin would be 36 to 38 percent, and operating margin would be 25 to 27 percent.

The revenue guidance represents a sequential increase of 6.4 to 13.5 percent from NT$7.05 billion in the April-to-June period.

“We anticipate a further increase [in] wafer demand from customers,” Vanguard vice president D.L. Tseng (曾棟樑) said in a statement.

In the second quarter, net profit grew 45.1 percent from a year earlier and 23.8 percent from the previous quarter to NT$1.42 billion, with earnings per share of NT$0.86, the highest in two years.

Gross margin was 33.8 percent and operating margin was 23.5 percent, both beating the company’s May 3 guidance thanks to favorable foreign-exchange rates and a better product mix.

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