Sat, Sep 23, 2000 page17

• Warning by Intel brings chips down

  ROLLERCOASTER RIDE Analysts said yesterday's drop in shares for top chipmakers was an overreaction and that the drop provides investors with bargain opportunities

  • By Thomas Ker / CONTRIBUTING REPORTER
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  Shares in Taiwan Semiconductor Manufacturing Co and United Microelectronics Corp fell almost limit down yesterday after US-based Intel Corp announced its first profit warning in two years.

  TSMC and UMC, the world's two largest producers of made-to-order computer chips, are considered Taiwan's bellwether shares of the semiconductor industry.

  Both companies reported, however, that demand for their foundry services remains strong and analysts said the market overreaction had created a good buying opportunity for the companies' shares.

  "Intel is talking about its CPU and chipset products," said a UMC official. "Those parts don't take up much of our product combination."

  TSMC shares fell the limit 7 percent to NT$106.5. UMC fell 6.94 percent to NT$67. In February, shares in TSMC were trading for as high as NT$222 per share. The shares fell after Intel said Thursday its third-quarter revenue was expected to be below the company's previous expectations.

  Intel announced the revenue warning because of weaker than expected demand in Europe. But UMC said yesterday the company had already foreseen this trend and adjusted its product combination accordingly.

  "This year, communications products are more profitable than PC products," the UMC official said. "PC products are not so important." Communications-related chips constituted about 40 percent of the company's sales volume this year, he said.

  Guo Shan-shan, a spokesman for TSMC, also said that communications chips have become more important for TSMC. "The most significant growth for our company has been in the manufacture of chips for communications services," he said.

  Officials at both companies also said foundry capacity is full and insufficient to meet demand. Neither company has noticed any change in orders or downturn in the semiconductor industry.

  Nor have analysts who specialize in the foundry industry. "All in all, the semiconductor situation is still very good," said Ken Chang, a semiconductor analyst at China Securities Co. "The global growth rate of PCs next year is about 14.5 percent, according to my model, and demand for communications products is continuing to grow," he said.

  Intel's profit warning may be the cue for overvalued global IT stocks to undergo a correction in their share prices. However, the worldwide fall in technology stocks yesterday -- irrespective of their particular sector in the technology industry -- is being interpreted by analysts as an overreaction.

  "If you look at the product mix of TSMC and UMC in terms of their PC-related and CPU-related product mix, it's no more than 30 percent or 40 percent," said Raymond Wu, an analyst at Entrust Securities. "So for their price to fall like this is because of superficial information," he said.

  But now that the companies' share prices have fallen, investors should take the opportunity to buy them while they are cheap, analysts said.

  "In the short term, it's a very good time to invest, particularly in these two stocks, based on their capacity utilization and their competitiveness among foundries worldwide," Wu said. "The market is quite emotional at this time; maybe in another week or so, investors will go back to the fundamentals."

  TSMC reported its expected numbers for the year less than two weeks ago. Net income for this year will rise to NT$64 billion, or NT$5.61 per share, the company said.
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