Wed, Oct 08, 2003 page11

• Powerchip rebounds from slump

  TURNAROUND A rise in memory-chip prices plus several cost-cutting moves have helped the chipmaker outperform its domestic rivals in a fiercely competitive market

  • BLOOMBERG
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  Powerchip Semiconductor Corp (力晶半導體), the nation's third-largest maker of memory chips, expects to report its first profit in five quarters after prices of its products rebounded in the past three months.

  The company will post a NT$1.4 billion (US$41 million) pretax profit for the quarter that ended Sept. 30, chairman Frank Huang (黃崇仁) said after a ceremony for a new plant in Hsinchu.

  Fourth-quarter profit will be higher, Huang said..

  The price of the benchmark memory chip rose 25 percent in the quarter just ended, boosting earnings at Powerchip after a cumulative NT$4.4 billion loss in the previous four quarters. The company has also cut costs by shrinking the size of chip circuits and using bigger silicon wafers that produce more semiconductors.

  "Powerchip is better than its rivals in Taiwan because its costs are lower," said Simon Chao (趙永宏), who manages US$17 million at President Investment Trust Corp (統一投信).

  Powerchip's shares have gained 44 percent this year, outpacing a 23 percent rise in shares of Nanya Technology Corp (南亞科技), the country's biggest memory-chip maker, and a 31 percent rise in TAIEX.

  Huang said he expects memory-chip prices to remain stable.

  The spot price of the benchmark 256-megabit, 266-megahertz double-data-rate dynamic random-access memory chip was at US$4.46 yesterday morning, 55 percent higher than its February low of US$2.86. The price peaked at US$8.88 last year.

  Powerchip expects its gross margin to improve from the current 30 percent as the company invests in more advanced factories that reduce costs, Huang said.

  The company plans to spend US$500 million this year and the same amount next year on expansion, aiming to raise its market share to 10 percent next year. Global memory-chip sales will climb 22 percent to US$18.9 billion this year as the industry recovers from a two-year slump, researcher Gartner forecasts.

  Powerchip plans to sell US$200 million to US$300 million of bonds convertible into shares in the second quarter of next year and may raise a NT$5 billion to NT$6 billion syndicated loan, president Brian Shieh (謝再居) said.

  The company, which said in July it expects to make its first annual profit in three years this year, last month sold US$205 million of new shares and convertible bonds.

  Powerchip will buy more equipment for its first factory that uses 12-inch wafers, which produce more than double the number of chips that can be cut from a standard 8-inch disk. The company is building a second 12-inch wafer factory, which it will start equipping in 2005.

  Powerchip's break-even cost for a 256-megabit DRAM chip is now US$3.20, Shieh said. That will fall to less than US$3 by the end of the year as the company increases production of smaller chips.

  By the second quarter of next year, most of the company's chips will be produced with technology that shrinks circuit width to 0.11 micron, Shieh said. Powerchip expects to be using 0.1-micron technology by the third quarter, at which point its production cost will fall to US$2.30.

  The company sells 65 percent of its chips on the spot market, with the rest sold on contract to customers.
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