Fri, Sep 22, 2000 page18

• Chipmaker Realtek Corp expects earnings increase

  CHIPSETS Now that an alliance between competitors VIA and 3Com appears to be less of a worry, the chipmaker's share price is expected to reach NT$300

  • By Thomas Ker / CONTRIBUTING REPORTER
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  Realtek Semiconductor Corp (瑞昱) is expecting a bumper year. Revenue for the year is expected to nearly double, and in July the company's share price reached nearly NT$300. It started the year priced at NT$138.

  The company is now the world's largest supplier of high-speed communication network chips, with about 50 percent of the world's total network chip market, analysts say.

  Next year, that figure could rise to 75 percent.

  So when VIA Technologies Inc and US-based 3Com Corp announced a technology alliance at the end of August that was to combine 3Com's networking technology in VIA's chipsets, some investors saw the move as a means to gatecrash into Realtek's market. Since the announcement, Realtek's share price has lost nearly a third of its value.

  The fall in the share price led Chen Chin-hsing, vice president of Realtek, to call a meeting on Wednesday to quell investor concerns.

  "The alliance between VIA and 3Com would not affect Realtek's network products because the integration of a network interface card into a chipset on a motherboard is not yet a mainstream technology," Chen said.

  "Even when it is, it will take time for VIA to resolve production-related problems and to bring the production cost down to a competitive price," he said.

  More importantly, VIA's development of the networking technology in a chipset is not for the sake of directly challenging Realtek, for now at least, analysts say.

  "VIA is doing this for the future development of its system on a chip, for the development of its own computer concept," said Patrick Wang, a research analyst at Yuan Ta Securities Co (元大).

  VIA is developing its own central processor units and chipsets with the aim of developing Internet device appliances. 3Com's technology will help enable VIA to develop chips with networking capabilities for PC OEMs while keeping costs to a minimum.

  Even so, the trend toward the integration of network interface cards into chipsets is an inevitable one, analysts say.

  So while VIA might not be posing a threat now, it will definitely have an impact on Realtek in the future, they say. The transition to the chipset will take six to 12 months.

  "Realtek sells products for the network interface card," said an electronics analyst at China Securities Co (中華投信).

  "VIA and 3Com want to integrate the card on a chip, so computers won't need the card. With about 75 percent of its revenue related to this card, that will definitely affect Realtek," the analyst said.

  Of greater concern in the shorter term is Realtek's ability to sustain its growth rate.

  After more than doubling its growth rate this year and increasing its world market share of network chips from about 25 percent last year to 50 percent now, even an increase in market share to 75 percent next year would mean slowing growth, analysts say. That's the main reason for the falling share price, they say.

  Realtek has forecast revenue this year of NT$5.8 billion, and an after-tax earnings per share of NT$7.45.

  That's an increase of 82 percent over last year's revenue of NT$3.19 billion, and more than double last year's earnings per share of NT$3.50.

  The analyst from China Securities is forecasting 2001 revenue to grow 35 percent to NT$7.74 billion.

  The slowdown in the growth rate may have already begun. Realtek's Chen Chin-hsing said on Wednesday that orders in September, traditionally a peak month for sales, hadn't been as high as in August.

  That may be because market growth for high-speed communications network chips is already slowing down, analysts say.

  Sales of the chips are expected to grow 16 percent next year, down from nearly 21 percent this year, they say.
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