Analysis: U.S. woes muddy picture for Korean, Taiwan techs
TAIPEI (Reuters) - Hopes that Taiwan and Korean chipmakers will get a reprieve from tough business conditions in the second half of this year are growing fainter after a fresh round of warnings and layoffs by their U.S. counterparts.
Intel, the world's largest microchip maker, warned afresh about its sales, saying last week that first quarter revenues could fall by as much as 25 percent from the fourth quarter. It is cutting 5.7 percent of its workforce.
The maker of microprocessors that crunch data for most of the world's personal computers did rule out a scenario similar to a semiconductor crash in 1985, when Intel saw five out of six quarters in which sales fell sequentially.
Gloom has spread elsewhere in the tech sector since then, with the world's biggest network firm Cisco Systems saying it will cut seven to 11 percent of its global employee base and mobile phone maker Motorola Inc slashing five percent of its workforce.
Can similar gloom for Asian tech firms be far behind? Analysts say they are beginning to worry as the picture from the U.S. gets darker.
TSMC SEEN AN INDICATOR
So far, one of the most concrete forecasts in Asia has come from the world's No.1 chip foundry Taiwan Semiconductor Manufacturing Co (TSMC), whose Wall Street listing requires it to meet stringent U.S. financial disclosure rules.
TSMC has said it expects first quarter sales to fall by 26 percent from the fourth quarter versus an earlier projection of a 25 percent decline, but maintains it sees a bottoming out in March or April, a flat second quarter, and a recovery in the second half.
``So far there has been no change in TSMC's forecast,'' said Chitung Liu, regional semiconductor analyst for UBS Warburg in Taipei. ``But judging from what the U.S. news flow looks like, it looks as if confidence is declining.''
For all of 2000, TSMC reported a 165 percent rise in net profits to T$65.1 billion ($2 billion), matching analysts' expectations.
One of the reasons why many tech firms were optimistic about the second half was that sales had been choked by a pileup of component stockpiles in recent months.
Once personal computer, mobile phone and network equipment firms work through the inventory, parts makers are back in business, they argue.
But as expectations of a quick ``V-shaped'' recovery in the powerful U.S. economy -- the biggest consumer of tech products -- begins to look more prolonged or ``U-shaped,'' demand may not rebound as quickly as hoped.
``Asian companies are in fact exposed to global demand,'' said Merrill Lynch Asia semiconductor analyst Dan Heyler, who noted that Asia itself accounts for only 25 to 30 percent of the regional chipmaker sales.
RELIEF COMING FOR KOREA DRAM?
At the moment, Korea's tech sector appears to be the darkest spot in Asia excluding Japan.
Market heavyweights Hyundai Electronics and Samsung Electronics are heavily dependent on volatile prices of dynamic random access memory (DRAM) which have mostly fallen below cost of production on the spot market.
Hyundai shares plummeted to a record low 3,000 won on Tuesday, battered by worries over a cash crunch at the world's second biggest memory chip maker. The company posted a nearly $2 billion net loss for 2000, with another loss expected this year.
However, Hyundai's woes may be a boon to other players in the glutted market for DRAM, a basic unit of memory used predominantly in personal computers.
Samsung Electronics, South Korea's largest chipmaker and the biggest stock listed, reported net profit of 6.01 trillion won ($4.67 billion) for 2000. But its results could be sharply dampened this year by weaker chip prices, with Multex Global Estimates forecasting a net profit of 4.5 trillion won in 2001.
``Near-term, we've been looking for some time now for Hyundai output cuts at a couple of fabs to be a catalyst for a bottom to DRAM prices,'' said David Wong, semiconductor analyst at Deutche Securities.
While Wong said DRAM would get little help from unit sales of PCs, past experience shows that computer makers cram more memory into each individual computer when chip prices get cheap.
Wong forecast demand for bits of memory to rise 65 percent this year, conservative compared with rates of 70-100 percent in past downturns. ``That, compared to what we're hearing from suppliers which aggregates to a 54 percent bit supply growth, gets us to a second half undersupply.''
Hyundai chief executive officer Park Chong-sup told reporters on Tuesday the company had no immediate plans to cut DRAM production but a further fall in DRAM unit prices could prompt a move to diversify output.
However, analysts say Hyundai and Samsung, both protective of their market share turf, are loathe to reveal production cuts.
``Neither company is likely to unilaterally say `We're cutting production','' said one analyst in Seoul. ``That would simply mean forfeiting market share.''
PCS FIRST TO CLEAR INVENTORY
Down the production stream, personal computer makers appear to be working clear of the inventory problems that had dogged sales since late last year.
Taiwan's Quanta Computer Inc, the world's largest notebook computer maker in terms of units produced, posted both year-on-year and month-on-month sales gains in February. Asustek computer, the largest motherboard maker, also made similar advances last month.
Investors also hope Taiwan's contract manufacturers will benefit from outsourcing by foreign brand names, though they warn the inventory workdown has just begun at network equipment firms, even though the PC sector was nearly out of the woods.
``Investors here (in Taiwan) seem to think the industry can be supported by the outsourcing trend,'' said Liu of UBS who added that the electronics-laden Taipei market had priced in a tech sector recovery in the second half of the year.
``If that cannot happen, then we will definitely see a further correction,'' he said. |
