Tue, Oct 30, 2001 page21

• Chartered shipments may start to rise

  FOUNDRIES The third-largest maker of chips to order doesn't expect its sales and capacity utilization rate to decline further, giving Chartered's business some stability

  • BLOOMBERG
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  Chartered Semiconductor Manu-facturing Ltd (特許) may ship more chips in the fourth quarter from the third as orders trickle in after a one-year slump, said Chia Song-hwee, the company's chief financial officer.

  The third-largest maker of chips to other companies' specifications said shipments fell to the lowest level in the third quarter since going public two years ago. Sales and the use of factory equipment aren't expected to decline further, giving Chartered's business some stability, Chia said in an interview.

  Like Chartered, others chipmakers are expecting to see quarter-on-quarter improvements in orders, suggesting the industry may rebound from one of its worst quarter ever. Shares of Taiwan Semiconductor Manufacturing Co (台積電), Chartered's biggest rival, rose 5.6 percent Friday after the company said it expects fourth-quarter sales to rise 15 percent from the third.

  "It looks like there's a pick up in orders and things are turning around," said Tan Gee-chee, who helps manage about S$250 million (US$137 million) at OUB Optimix Funds Management Ltd in Singapore and owns Taiwan Semiconductor shares.

  Shares of United Microelectronics Corp (聯電), the second-biggest maker of chips to other companies' specifications, rose as much as 1.3 percent yesterday. The company is expected to report a third-quarter loss today, though Chairman Robert Tsao (曹興誠) said in September the three months will be the company's worst this year.

  For Chartered, the gain in the fourth quarter may come as Broadcom Corp and Conexant Systems Inc, two of the Singapore-based company's five biggest customers in 2000, said this month they expect sales in the current quarter to expand from the previous three months. Chia declined to say which customers are adding orders or how many chips Chartered will ship.

  "It does indicate that the deterioration has slowed down and business has stabilized at this stage," said Dharmo Soejanto, an analyst at Kim Eng Securities Pte in Singapore, who rates Chartered a "sell." "However, unless you see a strong surge in business, it may be a long climb up."

  Plunging chip demand, which some industry analysts say is the worst in history, is expected to push global semiconductor sales down 32 percent this year, the World Semiconductor Trade Statistics industry group said.

  While Chia expects a gain in shipments and for business to slowly turn around with the addition of a handful of new customers, he remains wary about the pace of the recovery after the Sept. 11 terrorist attacks in the US.

  "It has definitely created some level of uncertainty, and with that, we're more cautious on our guidance," said Chia. "At the same time, more customers are showing a more positive outlook and fewer companies in our customer base are showing a decline."

  Investors agree that the outlook for chip companies has become more stable in the fourth quarter, though they remain circumspect on whether business will pick up immediately.

  "Anecdotally, that's what we're hearing, that things are looking better," said Hugh Young, managing director of Aberdeen Asset Management Asia, which oversees US$3.5 billion of Asian stocks. "They are still glimmers currently -- we think there will be normal demand coming back but these stocks will be nowhere near the over-hyped levels they were at."

  Chartered said it has no plans to fire workers or shutter any of its five plants, all located in Singapore. About a fifth of its production equipment is being used, far from the 70 percent level it needs to become profitable.

  "We are very mindful of the difficulties of retaining and hiring good engineers and good technologies, and this is not a place for you to take a short cut," Chia said. "Labor costs, while not insignificant, are not going to make or break a company."

  Shares of Chartered, which recorded three straight quarters of losses, have fallen 25 percent since the start of the year.

  That's better than the Bloomberg Asia Pacific Semiconductors Index, which has lost about a third of its value. Taiwan Semiconductor shares have fallen 9.4 percent this year.

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