Chartered Semiconductor Manu-facturing Ltd, a money-losing maker of chips to other companies' specifications, said it expects the communications market to boost earnings once the chip market recovers.
"When the inventory is worked off, the incremental demand from the communications sector will be significant," Chief Financial Officer Chia Song-hwee said in an interview.
PHOTO: BLOOMBERG:
Singapore-based Chartered last week said it lost US$107.6 million in the second quarter, its biggest loss since going public in 1999, as customers such as Ericsson AB and Conexant Systems Inc ordered fewer chips. The company expects the loss to swell to as much as US$133 million in the next three months.
Chartered has tried to stand apart by targeting the communications market while rivals such as Taiwan Semiconductor Manufacturing Co (台積電) and United Microelectronics Corp (聯電) cater more to computer makers. Even though Ericsson and Conexant are expected to post losses in the next three months, Chartered is pushing ahead with plans to spend US$3.5 billion on a new chip plant.
"The growth rate of communications chips will be higher when demand picks up next year as these companies outsource more," said Pranab Kumar Sarmah, an analyst at Daiwa Institute of Research Singapore Pte.
"In the long term, all the three foundries will be focusing more on communications."
Chartered shares have fallen 12 percent this year, compared to the Bloomberg Asia Pacific Semiconductors Index, which dropped 23 percent.
Companies such as Conexant, the biggest maker of chips for computer modems, are farming out production instead of making chips themselves. Chartered is counting on more orders next year as the industry climbs out of a nine-month slump.
Chipmakers are facing their worst year-on-year revenue decline ever, industry forecaster International Data Corp predicts. Chip sales are expected to decline 21 percent this year, down from a record of nearly US$200 billion in sales last year, IDC said in a recent report. Growth may not return to double figures until 2003 at the earliest, said IDC.
Unlike chips for personal computers, which tend to be more generic, communications chips require more research and development capital because the variety of products make them more complex, Sarmah added.
Communications customers accounted for half of Chartered's sales in the past two years, up from 29 percent in 1997.
The communications industry is suffering from weaker demand as the global economy slows. Last week, analysts at Morgan Stanley Dean Witter said mobile phone sales worldwide may fall this year for the first time in the more than two decades since the industry emerged as the economy is slowing and consumers are waiting for new models.
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