Chipmaker Chartered slides on demand concerns
By Bloomberg News
December 12, 2000, 10:05 a.m. PT
SINGAPORE--Chartered Semiconductor Manufacturing, whose shares have surged as much as six times from their initial share sale a year ago, has seen its luster as a star performer dim.
Stung by profit and sales warnings from Hewlett-Packard and Lucent Technologies--co-owners with Chartered of two $1 billion chip plants in Singapore--investors have quickly dumped the island-based chipmaker's shares. The stock has plunged 60 percent in the past six months, the worst on the Singapore benchmark Straits Times Index.
Chartered, the world's No. 3 contract chipmaker, is being outflanked by the decades of investments made by Taiwan-based rivals United Microelectronics and Taiwan Semiconductor Manufacturing. The two spent money long ago to withstand the weaker demand they face now, investors said.
"When things slow down, Chartered will get impacted more because you have a higher fixed cost as a newer company," said Cheong Kum Hong, who helps invest $600 million for Commerzbank Asset Management Asia in Singapore. "Once you produce less, the cost for each unit will be higher."
Investors say the stock tracks those concerns: Chartered's decline is nearly half more than Taiwan Semiconductor or United Microelectronics in the past six months. Chartered's American depositary receipts, which are blocks of 10 shares, also dived 60 percent during that time.
The company was counting on a boom in the chip industry. Chartered is building a $2.1 billion plant to double capacity next year. That's on top of the ones it owns with Lucent and HP that were completed in the past two years.
Chartered, Taiwan Semiconductor and United Microelectronics together control more than three-quarters of the world's market for chip manufacturing that's farmed out. However, lower demand is causing concern.
The weaker demand comes as customers order fewer semiconductors to power devices from personal computers and cell phones to Internet devices. Other key customers such as Motorola and Ericsson, the No. 2 and No. 3 cell phone makers, are also seeing orders slow.
"It's quite tough going forward for the semiconductor industry in January and February," said Warren Lau, an analyst at HSBC Securities in Singapore. "We are likely to see negative month-on-month and sharp fall in year-on-year growth in first-quarter 2001."
Such worries fueled speculation that Chartered will issue a profit warning for 2001 and delay the completion of a new plant. The speculation began last week, pushing the stock down 5.9 percent Thursday.
"Chartered is often subject to speculation and rumor, and it's our policy not to comment," said Maggie Tan, Chartered's spokeswoman.
Earlier this year, analysts' estimates showed that Chartered's orders were one and a half times what it could produce. It's meeting the demand now, though its customers' needs could fall to only 80 percent of what the company is able to make in the earlier part of 2001.
"There's a little bit of inventory buildup and also softening on the demand side," said Pranab Kumar Sarmah, an analyst at Daiwa Institute of Research in Singapore. "And the growth momentum is slowing."
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