Here is an article from the WSJ about IMOS, a stock I mentioned in a previous post.
TAIPEI -- Companies that make chips used to store temporary data in computers have fallen into another of their periodic soft patches, but not everyone in the business is suffering.
If fact, some companies that put the finishing touches on memory chips are prospering, including several smaller ones few people outside the industry have heard of.
Three companies in particular -- Taiwan-based ChipMOS Technologies Bermuda Ltd. and Powertech Technology Inc., and Singapore's United Test & Assembly Center Ltd., or UTAC -- are benefiting from a lack of factory investment in recent years that has made capacity scarce, thereby buoying prices for their products and services. The increasingly widespread adoption of a new generation of memory chips -- for which these companies can charge much higher prices to test and package -- is likely to further boost their fortunes.
During the past year, ChipMOS, Powertech and UTAC have expanded their ability to test these advanced memory chips -- called double-data-rate chips, or DDRs -- for defects and then package them in protective materials. An improved version of the chips that is faster and more expensive, known as DDR2, is gaining popularity and is expected to start becoming the standard for notebook computers early next year.
Many bigger companies that test and package semiconductors have eschewed the memory-chip business owing to price volatility. Hence, while there are plenty of memory-chip makers like industry leader Samsung Electronics Co. of South Korea, there are relatively few testing and packaging firms that specialize in memory.
"It takes time to build expertise in DDR testing. It's not easy for" rivals to enter the business quickly, said Ted Parmigiani, an industry analyst at Lehman Brothers in San Francisco. He has an "overweight" rating on ChipMOS with a 12-month share-price target of US$12, more than double the US$5.89 price at which the shares traded yesterday morning in the on the Nasdaq Stock Market
Lehman has an investment-banking relationship with ChipMOS and owns more than 1% of the company.
Meantime, BNP Paribas Peregrine has an "outperform" rating on UTAC, with a 12-month price target of S$1.06 (64 U.S. cents), compared with 51 Singapore cents at yesterday's close in Singapore.
Memory-chip prices tend to swing widely with personal-computer demand. A lot depends on the season and output levels of producers, and during the past few years, oversupply has been a common occurrence.
The high price of doing business also keeps many testing and packaging companies away from the memory business. Some pieces of equipment needed to test DDR chips could cost as much as US$5 million apiece.
"Historically, we haven't been very excited about the [memory-chip] market," said Freddie Liu, spokesman at the world's biggest chip packaging and testing company, Taiwan's Advanced Semiconductor Engineering Inc. "I don't think we're that keen on looking into it."
But the niche players haven't been dissuaded.
Singapore's UTAC is so confident of the memory-chip business that it agreed to buy Taiwan rival UltraTera Corp. for US$245.4 million of stock, a deal it expects to wrap up soon.
"UltraTera is a 100% memory company and a 100% test company. It's 100% in what we want to do," said Chong Chow Pin, head of investor relations at UTAC, adding that Taiwan's growing role in the global memory-chip industry is another reason for the deal.
Crystal Lee, a chip analyst at ABN Amro, said in an industry report last week that global memory-chip makers like Samsung Electronics and South Korean rival Hynix Semiconductor Inc. will have to fight to secure a steady supply of packaging and testing capacity, a battle that "is just beginning." She rates Powertech a "buy," with a 12-month share-price target of NT$85 (US$2.62), compared with yesterday's closing level of NT$72 in Taiwan.
ABN Amro has said it may do investment-banking work for Powertech. |
