Asian chipmakers see gloomy Q4; 2012 a bit brighter

Reuters News
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Posted: Oct 27, 2011 5:29 AM
Asian chipmakers see gloomy Q4; 2012 a bit brighter

By Clare Jim and Mayumi Negishi

TAIPEI/TOKYO (Reuters) - Asian chipmakers, including the world's top contract chipmaker TSMC, reported sharply worsened quarterly earnings and braced for another uncertain quarter as a weak global economy hits demand for computers, though roaring growth of smartphones and tablets offered a bright spot.

On Thursday, Taiwan's TSMC reported a worse-than-expected 35 percent decline in profit to T$30.4 billion ($1 billion), its fourth straight quarterly drop.

South Korea's Hynix Semiconductor Inc, the world's No.2 computer memory chipmaker, reported its first quarterly operating loss in two years.

In Japan, Hynix's rival Elpida Memory Inc also tumbled to a quarterly loss.

"With ongoing global macroeconomic uncertainty, demand weakness in PC market is expected to continue," Hynix said in its earnings statement on the dynamic random access memory (DRAM) market outlook for the fourth quarter.

Contract prices of DRAM chips tumbled 29 percent in the July-September quarter to around production costs, forcing most chipmakers to lose money.

Hynix reported a worse-than-expected 277 billion won ($245 million) third-quarter operating loss, while Elpida posted a 44.7 billion yen ($588 million) operating loss.

Elpida was further hit by a strong yen.

"If the yen stays at current levels, we will move production to Taiwan as soon as preparations are made," Elpida President Yukio Sakamoto said. "Overseas production is our only option."

Elpida, Japan's biggest DRAM chipmaker, would transfer some production from its Hiroshima factory to Rexchip Electronics Corp, its joint venture with Taiwan's Powerchip.

"For investors the choice now is chip heavyweights, regardless of whether they are foundries or design houses, because they have deep pockets so they can still invest in R&D, developing new products to make sure they won't fall behind in the next upturn," said Allen Chen, a fund manager at Capital Investment Trust Corp in Taipei.

"But institutions won't touch DRAM shares at the moment."

Shares in Hynix tumbled 30 percent over the past six months, while Elpida plunged 57 percent. TSMC gained 2 percent in the same period.

RECOVERY HOPES

Analysts said there were chances of a recovery in the first half of next year, when inventory adjustment was expected to be complete and chip prices bottom out.

"Inventory adjustment should complete in the first quarter and go back to a slightly lower than normal demand pattern after," said Nomura analyst Patrick Liao.

"How the chip makers perform also depends on who their clients are and whether their clients are doing well," he said.

TSMC chairman Morris Chang said on Thursday that the chip industry could grow 3 percent to five percent next year, though TSMC's growth would outpace that by several points.

He expects inventory correction to finish at the end of this year.

"After all the destocking, we may see a sudden surge as amazing and strong as we saw in the third quarter of 2009. The winter this time is not as cold as that in 08-09."

TSMC's CFO, Lora Ho, said that communications chips will the one source of revenue growth in the fourth quarter. The segment had grown 3.3 percent in the third quarter over the second, versus a 16 percent fall in PC segment revenue.

The company, which supplies chips to such fabless clients as Texas Instruments and Nvidia, trimmed its 2011 capital spending forecast to $7.3 billion from $7.4 billion.

Elpida said it will stick to its annual capital spending plan of 80 billion to fund its push to grab a bigger share of the lucrative smartphone and tablet market.

"Amongst electronics products only communications are doing reasonably well, computers and consumer electronics are not strong, so for chip makers there are no clear recovery signs," said Capital Investment's Chen.

TSMC, Elpida and Hynix joined a growing list of technology companies predicting grim fourth-quarter.

Taiwan's UMC, the No.2 contract chip maker, reported a better-than-expected third quarter net profit on Wednesday, but noted a more difficult fourth quarter as demand slows amid economic uncertainty.

U.S. chipmaker Texas Instruments said on Monday it saw a further decline in demand in Q4 and Europe's STMicroelectronics forecast an 8 percent fall in fourth-quarter revenue.

(Additional reporting by Argin Chang in TAIPEI and Ju-min Park in SEOUL; Writing by Jonathan Standing; Editing by Miyoung Kim)