Thu, Nov 01, 2001 page18

• Chipmakers' losses may hurt share sales

  NEEDED CAPITAL Analysts say Taiwan's memory-chip producers face a global glut in the market and may be forced to consolidate in order to restore their profitability

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  Taiwan's memory-chip makers may have a harder time raising a planned US$700 million in overseas share sales and loans in coming months after their third-quarter losses equaled four-fifths of that amount.

  The NT$19.9 billion (US$576 million) in losses reported by Powerchip Semiconductor Corp (力晶半導體), Mosel Vitelic Inc (茂矽電子) and Taiwan's three other memory-chip makers aren't likely to be reversed quickly, even though they're trying to diversify into other kinds of chips. With the global memory-chip market mired in a glut, some investors say only a reduction in the number of companies can restore the business to long-term profitability.

  "I hope they merge," said James Liu, who helps manage about NT$1.8 billion in equities for National Investment Trust Co (弘裕財務管理) and sold his stake in Powerchip in September. "They can't return to the black before the third quarter next year." Powerchip, Mosel and ProMOS Technologies Inc (茂德科技), a venture between Mosel and Infineon Technologies AG of Germany, need to sell shares in coming months to finance plant upgrades aimed at sharpening their edge against larger Korean and US rivals.

  ProMOS aims to raise US$200 million in an overseas share sale before year-end; Powerchip will seek up to US$300 million in the first quarter of next year and Mosel plans on raising US$200 million over the next eight months through bank loans and a sale of global depositary receipts, spokesmen for the companies said.

  In the meantime, they and other memory-chip producers in Taiwan are venturing into other types of semiconductors to weather a market slump. Global sales of memory chips, used in personal computers, are forecast to plunge 61 percent this year to US$11.3 billion.

  "Demand has not been there in the last six months," Thomas Chang (張東隆), a Mosel vice president, said in an interview. "We will try to start a joint venture with an international player to fill up one of our plants." The Taiwanese companies, which make about a fifth of the world's memory chips, all reported third-quarter losses this week.

  Powerchip, the largest, lost NT$4 billion as sales tumbled by about 75 percent from a year earlier to NT$1.7 billion.

  Mosel, the second-largest maker by sales, lost NT$6.2 billion while ProMOS, the third-largest, lost NT$1.9 billion and Nanya Technology Corp (南亞科技) lost NT$3.8 billion.

  Winbond Electronics Corp (華邦電子), which has cut memory-chip production to about a third of total output, lost NT$4 billion.

  While the companies are trying to reduce their reliance on memory chips, new products aren't a sure-fire remedy.

  "The best way is probably to do what Powerchip has done," said Lloyd Tsai, who helps manage US$2 billion for Invesco Taiwan Ltd and owns no shares in any of the memory-chip makers. "The company will downsize its memory-chip production and shift about 70 percent of its production into the chip-foundry business." That will put Powerchip into direct competition with Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world's largest maker of chips for other companies. TSMC, which mostly makes higher-value-added chips rather than memory chips, is also in a slump: It's using only about 40 percent of its production capacity because orders have dropped by about half from a year ago.

  Mosel has started production of chips that control flat-panel displays. It hopes to reduce memory chips to 65 percent of production, from about 85 percent now, by the middle of next year, Chang said.

  Notwithstanding their profit drops, some of the Taiwanese companies expect to outperform rivals such as Korea's Hynix Semiconductor Inc, the world's third-largest memory-chip maker, which is burdened by debt, losses and aging production equipment it can't afford to upgrade.

  "We will be among the few companies to profit first," said Albert Lin, a ProMOS spokesman. "We still expect to profit by the second half of next year."

  Powerchip and ProMOS are among four memory-chip makers worldwide that have started to build multibillion-dollar plants aimed at cutting memory-chip production costs by as much as 30 percent. The new plants will make larger, 300mm silicon wafers, capable of producing more than double the number of chips that can be made from the current standard-sized wafer.

  Even so, the companies have slowed plans to build the plants and postponed sales of new shares to help fund expansion.

  "We have deferred installation of equipment to May 2002," Eric Tang (譚仲民), a Powerchip vice president, said in an interview. "We expect output by the end of 2002."

  Tang said Powerchip still hopes to raise as much as US$300 million in next year's first quarter to help fund expansion of the plant, even though the company's falling share price forced it to scrap an overseas share sale earlier this year.

  ProMOS plans to raise US$200 million with an overseas share sale this year, Lin said.

  Mosel said it hopes to raise US$200 million over the next eight months through bank loans and a sale of global depositary receipts to finance expansion of its jointly owned ProMOS plant, enabling it to make the larger wafers.
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