When ST Assembly Test Services Ltd listed its five biggest customers on a conference call three months ago, analysts were quick to notice the absence of Alcatel SA, Europe's fourth-largest phone-equipment maker.
Instead, Asia's second-largest chip tester counted on smaller clients such as Centillium Communications Inc and Marvell Technology Group Ltd, making it harder for the Singapore company to ride out the frail demand in the chip industry.
With competition heating up amid slower sales, analysts say ST Assembly, as well as sister company Chartered Semiconductor Manufacturing Ltd, are expected to lose more orders to bigger rivals such as Taiwan Semiconductor Manufacturing Co (
"Customers will concentrate their business to a limited pool of suppliers, and leaders are better positioned to take market share in a downturn," said Patrick Yau, an analyst at ABN Amro Asia Securities Pte in Singapore.
Chartered, the third-largest maker of chips to other companies' specifications, is expected to post a third-quarter loss of US$135.1 million, or US$0.98 for each American depositary receipt, according to the average estimate based on a survey of five analysts by Bloomberg News. The company is expected to release its earnings results after the US markets close today.
ST Assembly, which will announce results after the US markets close Tuesday, is expected to report a US$36.6 million loss in the third quarter, or US$0.37 cents for each ADR, according to the average forecast by the same group of analysts surveyed.
"Fundamentally, we're still bearish on the semiconductor sector," said Jatin Doktor, an analyst at GK Goh Research Pte in Singapore. "We don't think demand is going to be very strong, and given there's an over-capacity problem, we don't think people should be running into these stocks."
Chartered's two biggest rivals are Taiwan Semiconductor Manufacturing Co and United Microelectronics Corp (
While Conexant said Chartered is still a supplier, analysts say the contract meant Chartered may lose orders for Conexant's high-end products. ST Assembly also stands to lose contracts to its much bigger rival in Taiwan, ASE Test Ltd, analysts said.
That may stall the recovery of both companies, where four-fifths of equipment isn't used. They also hold higher costs because they are newer and have been expanding. Chartered, for example, started production in two joint venture plants in the past couple of years. Each of those factories costs US$1 billion.
"The whole industry is undergoing a major downsizing and in terms of costs, they are certainly higher because the break even point is higher," said Cheong Kum Hong, chief investment officer at Commerzbank Asset Management Asia Ltd, who helps manage US$600 million in Asia outside Japan.
In the past year, Chartered and ST Assembly shares plunged 58 percent, while the Bloomberg Asia Pacific Semiconductors Index dropped by half.
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