Silicon Integrated Systems Corp (SIS, 矽統), one of Taiwan's leading logic chipset manufacturers, lowered its financial target for the year on Saturday as a shortage of wafers reduced shipments and the bearish stock market restricted its ability to increase revenue by selling investments.
The company also announced it would start to buy back its own shares in an attempt to shore up a stock that is trading down 66.5 percent from a seventy-two day high in early September. Yesterday, it closed down 1.82 percent at NT$37.80.
The chipset maker reduced its year 2000 revenue target by nearly 30 percent to NT$9.06 billion and its net income by 83 percent to NT$666.4 million, or NT$0.69 per share. Analysts had predicted an earnings per share of NT$2.44, according to Barra Global Estimates.
"This year, the major problem is low wafer capacity," said Ellie Yin, international marketing manager at SIS. "UMC cut down our shipments, so we didn't have enough to ship to our customers," she said.
United Microelectronics Corp (UMC, 聯電), the world's second largest chip subcontractor, said in March that it would stop accepting wafer fabrication orders from SIS because of the chipset maker's construction of its own wafer plant. SIS finished construction of the plant last year and reportedly began mass-production in June this year. While SIS said that the plant provided it with guaranteed capacity to meet demand, UMC is concerned SIS may become a competitor.
But as well as capacity shortages because of reduced supplies from subcontractors, SIS has also suffered because of the low capacity at its own plant.
"Because it just began production this year and because it's not used to running a factory, so the yield ratio is not very good, maybe only 20 percent," said an analyst at Entrust Securities Co.
George Wu, an analyst at Taiyu Securities Co, said that the delay in SIS' foundry manufacturing process was the main reason behind the company's low share price."We're not surprised by the downward financial readjustment," he said.
SIS had also planned to increase revenue by selling off part of its 37 million share stake in Vanguard International Semiconductor Corp. However, it delayed that plan following the slump in stock prices in recent months. Vanguard, which makes dynamic random access memory and wafer foundry products, closed down 3.3 percent yesterday at NT$20.3 after trading at the NT$40 level in early September.
As well as depriving SIS of the ability to increase revenue, the bearish stock market may also have pressured the company's board of directors to announce a share buyback at the end of last week, analysts said. The company will buy back up to 30 million shares any time before Jan 3 at a price between NT$27.5 and NT$70.5. "They need to do this to stop the share price from going down because they borrowed lots of money from banks and used their shares as collateral," said Taiyu Securities' Wu. However, being short on cash, there is doubt over whether the company has the ability to carry out a share buy-back, Wu said.
Analysts also question whether a share-buy back is the best strategy for a company that has just enough cash to support operating costs and that still has plans to start construction of a 12-inch wafer plant in December.
"Is it appropriate to use cash to buy back shares?" asked an analyst at Taiwan International Securities Corp." "Perhaps not," she said, "but it's the only way to avoid a worse situation from happening."
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