Contract chipmakers are expected to see their factory utilization rate start to fall to about 90 percent next quarter and 80 percent in the first quarter next year amid weakening sales of PCs, TVs and networking devices, Credit Suisse said yesterday.
A recent slowdown in end product demand would mean decelerating growth for the semiconductor market, putting an end to tight supplies for contract chipmakers, which has lasted for the past few quarters, Credit Suisse research analyst Randy Abrams told reporters on the sidelines of the brokerage’s annual Asia technology forum in Taipei.
Moving into next quarter, Abrams said he expected “to see a decline in utilization and profitability in the next couple of quarters after the seasonal [increase in demand] finishes. So, we do expect a more conservative outlook.”
Because of this slowdown, Credit Suisse has downgraded its share recommendations on local chip packagers and testers Advanced Semiconductor Engineering Inc (日月光) and Siliconware Precision Industries Inc (矽品) to “neutral” from “out-perform.”
“Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is [a] defensive [stock]. It has a lot of cash and pays good dividends no matter whether in upturns or downturns. [It presents] a bit of safety. With cost leadership, it can get through the business cycles better,” Abrams said.
He rated TSMC stock “out-perform” with a target price at NT$77.
“But we are not overly negative, because a lot of companies’ valuation is quite reasonable. Just in terms of momentum ... It is tough to see a big upside yet,” Abrams said.
As for local exporters, the technology sector will feel the pinch of weakening US consumption and sales of electronics. Abrams slashed the year-end target for the tech-savvy TAIEX to 7,300 points from 8,500.
The US is the biggest buyer of Taiwanese goods after China. Turnover of technology stocks accounted for about 68 percent of the stock market’s total trading as of July 31, according to Taiwan Stock Exchange statistics.
To comply with the change in market demand, Abrams suggested investors reduce tech stocks in their investment portfolio to 56 percent, while boosting non-tech stocks to 44 percent, compared with his suggestion in May of 62 percent and 38 percent.
Abrams also preferred stocks with exposure to the domestic market, like airlines and private banks.
Credit Suisse was positive about Chinatrust Financial Holding Co (中信金控) and Taishin Financial Holding Co (台新金控), saying returns would improve on the back of a decline in bad loans and a rebound in credit card issuance, Abrams said.
Separately, Abrams said he did not expect that the year-end special municipality elections would “have a positive effect” on the local stock market, given that the TAIEX has historically matched the movement of the MSCI All Country Asia ex Japan index.
However, Abrams said there could be a swing factor; a recent poll of candidate preferences showed that Democratic Progressive Party candidates in Tainan and Kaohsiung got better scores than their Chinese Nationalist Party (KMT) competitors.
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