Chartered must work to regain health

Chartered Semiconductor Manu-facturing Ltd Chief Executive Barry Waite wasted little time getting back on track after surgery in early March. A week after doctors removed a lump from his heart, the 52-year-old was on the treadmill, trying to whip himself back into shape.

``I'm here and I have a clean bill of health,'' Waite said. ``I'm doing all the things you'd expect me to do -- exercising, flying around.'' He needs to be fighting fit. The third-biggest maker of chips to others' designs said two weeks ago it lost money in the three months ended March 31, the first loss in six quarters.

The loss also sets the company back further in its bid to close a gap with bigger rivals Taiwan Semiconductor Manufacturing Co (台灣積體電路公司) and United Microelectronics Corp (聯電). Both companies, which are still profitable, reported a drop in profit in the past week.

Things are going to get worse for Chartered. Waite, who cut his two-month recuperation short to retake the helm at Chartered, told investors he expects the chipmaker's loss to widen this quarter to as much as US$0.50 to US$0.52 for each American depositary receipt, more than twice its loss in the first quarter.

Waite must also win back investors who punished Chartered's shares, wiping out US$5 billion in market value in the past 12 months. Less than half of its manufacturing equipment is in use because of the lower orders -- and it's about to add more capacity with a new US$3.5 billion plant next year.

``What they'll have to do is to look critically at their capacity,'' said Pieter van Putten, managing director of Commerzbank Asset Management Asia Ltd, whose US$600 million of Asian stocks outside Japan includes Chartered shares. ``They have a lot of idle resources and that can't go on for too long.''

Granted, Chartered shares have been on a roll recently, gaining steam after Waite predicted second-half sales will rise on higher orders. The shares rose 30 percent in two weeks, making them the fourth-best performer on Singapore's Straits Times Index so far this year.

``Customers who want to cancel orders have done that and the new orders may start coming in the third quarter,'' said Warren Lau, an analyst at HSBC Securities Ltd, who upgraded Chartered to an ``add'' from ``reduce'' two weeks ago.

Some analysts say they don't doubt Waite and his management team. In August, he appointed three key executives -- Rob Baxter, senior vice president of business operations, John Docherty, senior vice president of manufacturing and technology operations, and Chief Financial Officer Chia Song Hwee -- as part of the president's office.

During Waite's medical leave, the first time the three-man team was put to the test, Chartered sold US$575 million of bonds convertible into its shares -- more than the US$500 million it planned due to strong demand. Merrill Lynch & Co, which managed the sale, said Chartered had initially planned to raise just US$350 million.

Waite's experience has kept analysts calm even as demand for semiconductors plummeted. He ran Motorola Inc's semiconductor products division for seven years before joining Chartered three years ago. Former colleagues at Motorola such as Baxter and Docherty are also among Chartered's key executives.

``The Chartered senior management team are industry veterans,'' said Dan Heyler, a Merrill Lynch analyst in Taipei.