Taiwan Semiconductor Manufac-turing Co (
Merrill Lynch analyst Dan Heyler yesterday cut his recommendation on the world's biggest manufacturer of made-to-order chips to "accumulate" from "buy" due to growing inventories at communication equipment makers.
He similarly cut ratings for its two nearest rivals, United Microelectronics Corp (
TSMC and UMC, Taiwan's biggest and second-biggest listed companies respectively, heavily influence the movement of the nation's main stock index. The pair account for more than 22 percent of the TAIEX's weighting.
Shares of TSMC have fallen 28 percent this year, compared with 39 percent decline of the broader market.
Heyler said chip inventories "are at a four-year high at high-growth communication companies." The three could see "order flow slow in the first or second-quarter next year," he said.
The downgrade follows reports yesterday that TSMC will not be able to fully utilize its wafer production capacity next year.
Earlier the company said that its fabs would be running at full steam in 2001, but now it appears some of the capacity will sit idle.
TSMC president Tseng Fan-cheng (曾繁城) confirmed the company was experiencing a slowdown in orders and may not reach its full capacity in the fourth quarter. However, he emphasized that a combination of factors was taking its toll on the overall chip market outlook, including the state of the US economy, world oil prices, the domestic stock market and Taiwan's political turmoil.
TSMC's utilization rate is expected to fall to 95 percent from 100 percent in the first quarter next year and further decline to 90 percent in the second quarter, according to a Deutsche Bank research report.
Heyler also said there was concern about the slowdown in global personal computer sales being forecast by Dell Computer Corp, IBM Corp and other manufacturers.
TSMC shares fell NT$1.50, or 1.5 percent, to NT$98.50, after falling as low as NT$93. UMC fell NT$0.50, or 0.9 percent, to NT$57, after falling as low as NT$53.50.
All seven other analysts who follow TSMC have "buy" recommendations on the stock. All eight analysts who follow UMC also have "buys."
"We're now in an environment where people are looking for bad news and are more willing to discount good news," said Terrence Alford, who helps manage US$5 billion in Asian investments at Dresdner RCM Global Investor in Hong Kong. "The more prominent the house the more the news on downgrades will dissipate. Merrill Lynch is a big house."
Merrill Lynch is the biggest investment bank by number of stock brokers in the US and the second-biggest in term of market value.
Heyler, 35, has had a "buy" on TSMC, UMC and Chartered Semiconductor shares since joining Merrill Lynch in June 1999.
Previously, he was regional semiconductor research director at the Gartner Group in Hong Kong, a company that conducts research on technology.
Heyler says that Merrill Lynch still has a "long-term buy" on TSMC, UMC and Chartered Semiconductor.
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