Published May 11, 2009

Rebound, but still a tough year for Chartered

By ONG BOON KIAT

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CHIA Song Hwee's upbeat tone when he spoke to BT after Chartered Semiconductor Manufacturing's first-quarter results announcement might seem discordant at other times.

The good news is that the chip market is seen bouncing back with a vengeance in 2010, driven by pent-up demand, global economic recovery and new tech bulls.

But for now, the Chartered CEO has good reason to feel positive, despite the foundry posting a Q1 loss of US$99 million on revenue that fell 37 per cent from a year ago, and with plant utilisation plunging to its lowest level since 2001.

That's because, after spiralling downwards for months, orders have at last picked up, helping the contract chipmaker beat its own Q1 estimate of a possible US$132 million net loss.

Mr Chia also said the market could be bottoming now - a view echoed by chip industry authority Semiconductor Industry Association (SIA) and industry bellwether Taiwan Semiconductor Manufacturing Co (TSMC). SIA reported last month that worldwide semiconductor market sales had climbed in March, growing 3.3 per cent to US$14.7 billion from the previous month. The world's biggest contract chipmaker TSMC said recently that it sees the market picking up in the second half of the year - even as its own Q1 profit plunged 94 per cent last month.

But while the market has stirred, it is unlikely there will be meaningful rebound for the industry this year.

For one, the recent demand surge that benefited Chartered and its peers (triggered in large part by the Chinese government's massive stimulus spending) could be volatile. While China's economy relative to the rest of the world is robust, the country's growth has slowed and unemployment has deepened - and could yet put the brakes on the newly-created demand.

As well, while consumer spending in many countries including the US has shown signs of revival recently, corporate spending on IT hardware continues to head south, as companies put their spending on hold.

This year will likely see chip foundries in preservation mode.

In this regard, Chartered looks well-poised, having recently shored itself up with around US$300 million of funds raised from its successful 27-for-10 rights issue. The injection won't benefit operations directly, but it will give Chartered more operating leeway and bolster customer confidence.

Encouraging also for Chartered is the rising demand for its leading-edge technologies. The firm said revenues from 65nm (nanometre) and below technologies could grow 72 per cent sequentially in Q2.

'These are the things that we have never experienced in the past in Chartered, so the management team is really excited about it, as are the rest of the employees,' Mr Chia told BT.

For its current Q2, Chartered itself has projected a net loss of as much as US$64 million and revenue as low as US$321 million.

Reportedly, it expects to achieve the break-even utilisation rate of 75 per cent by year's end. A number of local analysts have predicted that the company will end the year in the red.

So will next year see a return to profitability?

Much depends on how well the Temasek- linked firm can go toe-to-toe with its hungry peers when healthy demand resumes. There will also be new competition, such as AMD's recent fab spin-off Globalfoundries, to contend with.

The good news is that the semiconductor market is expected to bounce back with a vengeance in 2010, driven by a combination of pent-up demand, the expected recovery of the global economy, and new tech bulls like smartphones, netbooks and other Web-connected devices.

Indeed, many analysts have said that the feeble bathtub-shaped recovery pattern that followed the dotcom bust in 2001 will not repeat itself this time.

Instead, the consensus is for an energising boomerang-shaped recovery. Chipmakers and gadget lovers alike will be keeping their fingers crossed.