Hi, dude, could you uncheck 'Use Fixed Font' when you post next time?
repost your story:
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------------------------------------------------------------"Any correction is a buying opportunity. We're still in the middle of the (upturn in the DRAM) cycle; so there's still plenty of upside in these shares."--------------------
FROM WSJ Interactive Edtn.
October 21, 1999
Asian Stk Focus: Taiwan's Winbond Pullback A Time To Buy
By DERMOT DOHERTY
TAIPEI -- Skittish investors have dumped shares in Winbond Electronics Corp. (Q.WBE) this week, but market watchers say the pullback presents a good chance to buy into the memory chip industry's recovery.
After surging to its year-to-date high of NT$63.50 last week, Winbond's share price has reversed direction in recent sessions on worries over chip prices, plunging by its daily limit of 7% on Wednesday. While managing to end unchanged at NT$56.50 on Thursday, for the week to date it's down a total of 10%.
"Any correction is a buying opportunity," said Nathan Emerson, country chief executive of ABN AMRO Asia in Taipei. "We're still in the middle of the (upturn in the DRAM) cycle; so there's still plenty of upside in these shares."
Analysts remain upbeat about the memory chip industry which, after languishing for much of the past four years due to a cyclical downturn, has sprung back into life in 1999.
Winbond's share price is near support levels and should rise to NT$110.00 12 months down the road, said Alfred Ying, a semiconductor analyst at Primasia Securities in Taipei.
The decline in Winbond and other chipmakers' stocks this week was sparked by a softening of prices for dynamic random access memory chips, which account for around half of Winbond's total output. An eight-inch 64 megabit DRAM chip, the industry standard, has slipped to about US$11 per chip on the spot market in Taiwan from NT$13 last week and US$20 just after last month's earthquake.
Investors were also spooked by unconfirmed local media reports that industry giant Micron Technology Inc. (MU) has predicted DRAM prices will plunge over the next three months.
Moreover, uncertainty has been cast over demand since Dell Computer (DELL) said on Monday that high DRAM pricing would force the PC giant to reduce the amount of memory it installs in its computers.
But analysts and traders note that current pricing is still well above the US$4.00-US$5.00 that it costs Winbond to make a 64MB chip. Moreover, the onset of the peak electronics season and a steady increase in contract prices to about US$10 should be enough to keep spot prices propped up around the US$10-US$12 level for the rest of the year, analysts said.
Given that pricing strength, Winbond's earnings-per-share will likely jump to around NT$5.00 in 2000 from a NT$1.50 this year, according to Primasia's Ying.
"Over the long term, Winbond's stock still has some upside," said Ying. "They've just renegotiated their contract price with (key customer) Toshiba and that will help fourth quarter earnings...(which) haven't been fully reflected in its share price."
Relationship With Toshiba A Big Plus
Beyond the recovery in DRAM prices, analysts say Winbond boasts several other strengths that should fuel stock gains over coming months.
Winbond escaped relatively unscathed from last month's devastating earthquake that cut power and halted production in the Hsinchu Science-based Industrial Park, Taiwan's version of Silicon Valley. The company said it will lose NT$800 million from sales throughout September and the fourth quarter as a result of the 7.6 magnitude quake, but expects insurance coverage to minimize the impact.
Moreover, Winbond is one of only three Taiwanese DRAM makers to have upgraded to higher-yield 0.20 micron manufacturing technology from 0.25 micron, the others being Powerchip Semiconductor Corp. and ProMOS Technologies Inc., a joint venture between Mosel Vitelic Inc. (Q.MVT) and Germany's Siemens AG (G.SIE).
The company has benefitted enormously from its four-year collaboration with Toshiba Corp. (J.TOS) of Japan. Earlier this year, the companies expanded their strategic alliance by penning another agreement under which Winbond will license 0.175 micron and 0.15 micron technology from the Japanese company and carry out contract manufacturing for it.
"Winbond's strength is its alliance with Toshiba," said a senior dealer at a foreign brokerage in Taipei, who asked not to be named. "Toshiba is a cutting-edge DRAM designer and that's really where it stands out. It's an excellent partner for Winbond."
Analysts say Winbond stands to gain from Toshiba's announcement last February that outsourcing will account for some 40% of its semiconductor supply by March 2000, compared with 10% expected this fiscal year.
And while DRAM prices will slide during the second quarter of 2000 amid the migration to 0.18 micron process technology and the slack season for the electronics industry, securities industry experts are unperturbed.
"Prices will drop 15%," noted ABN AMRO's Emerson. "But the cost of production will also fall about 30%."
-By Dermot Doherty;(8862)2502-2557 ddoherty@ap.org
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