Rollup of CSFB analysis of Taiwan Earthquake from YHOO (RFMD thread):
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08:51am EDT 21-Sep-99 Credit Suisse First Boston (Glavin, Charles (415) 836-77 Taiwan Earthquake: Initial Survey Indicates No Major Impact FBC
[FJ · Rcvd: Sep 21, 09:00 AM EDT ]
CREDIT SUISSE FIRST BOSTON CORPORATION
Equity Research Americas
U.S./Technology/Semiconductor
Charlie Glavin, CFA 1-415-836-7715 charlie.glavin@csfb.com
Maria L. Vallejo 1-415-836-7763 maria.vallejo@csfb.com
Regina Crilly 1-415-836-7767 regina.crilly@csfb.com
Communications ICs)
Taiwan Earthquake: Initial Survey Indicates No Major Impact to our Comm IC Companies
Summary
From our initial survey, the Taiwanese earthquake does not appear to have caused major structural damages to the area's leading semiconductor fabrication facilities. However, concerns do loom over the magnitude and extent of electrical and infrastructure damage.
There should not be any impact to the CY3Q quarter. Any impact should affect CY4Q and is dependant on the individual companies' exposure to the Taiwanese foundries, the number of wafers flushed, and the time needed to bring the fabs back on line.
PMCS and BRCM get a fair portion of their production from TSMC, but only two companies, GALT and CUBE, have most, or all, of their foundry production from Taiwan.
Most of our major franchise players have little or no direct exposure to Taiwanese foundries: AMCC, CNXT, DS, INTC, RFMD, TXN, and VTSS. We would be buyers on weakness of these stocks.
Investment Summary
Taiwanese Foundries Intact; But Infrastructure Hit Still a Concern
Based on our contacts in Taiwan, it appears that the impact to the major, Taiwan-based foundries was not as bad as initially feared when the news of the earthquake broke just before the markets' close yesterday. The major Taiwanese fabrication facilities that manufacture wafers for key semiconductor companies appear to be structurally sound, albeit without power.
Hsinchu (where most of the Taiwanese fabs for UMC and TSMC are located) is about 60 miles (100 kilometers) from the earthquake's epicenter.
We feel it is important to note that our views are based on preliminary information gathered, and can change as the companies have further time to assess damage and the impact for returning to "normal operations."
The last significant earthquake to hit a major semiconductor area was on January 17, 1995, in Kobe, Japan. Like Taiwan, the Kobe earthquake was severe, but most of the fab structures were left intact. Like then, our biggest concern with Taiwan is the damage that supporting infrastructure industries, such as electricity, chemicals, and transportation may have sustained. As of late last night, the main electricity grid for the Hsinchu Science-Based
Industrial Park was still down, meaning that the fabs located there were working on auxiliary power. Officials at UMC expect power to be back up on Tuesday.
We estimate that roughly 20-25% of wafers in process (WIP) could be at risk, translating into approximately two weeks worth of inventory. Based on our experience with other fabs that have had shutdowns, if there was a major power loss, it is only those wafers that were actually in active process that are likely to be scrapped.
Over the past 20 months, the Taiwanese industrial park has been hit by two other power outages, so we believe that solid back-ups are in place. During the last outage in July, emergency power helped minimize the impact, as UMC claimed less than 2% of its WIP had to be flushed. However, without a firm time for power restoration, the passage of time could affect other idle wafers, too.
Lower exposure to Taiwan could offer a good investment opportunities
We think that the uncertainty surrounding the extent of the Taiwan earthquake could negatively affect most semiconductor stocks. However, we believe that investors may find a good investment opportunity should stocks of companies with relatively low exposure to the Taiwanese foundry business negatively over -react. Contrary to what some investors may think initially, most of the franchise players in our Communications IC universe have little or no foundry
work being done in Taiwan. Since many of these companies deal in bipolar, BiCMOS, gallium arsenide, or silicon germanium processes, they either manufacture their wafers internally or at domestic foundries, notably IBM.
Within this universe, we believe that investors can break down the
opportunities according to exposure:
Very little / No exposure: AMCC, CNXT, DS, INTC, RFMD, TXN, VTSS.
Fair amount of exposure: PMCS, BRCM
Large exposure: CUBE, GALT
Exhibit 1: Review of Foundry Exposure and Relationships
Company % Internal % External Foundry Partners
AMCC 95% 5% IBM (SiGe)
BRCM 0% 100% TSMC (50%), Chartered (50%)
CUBE 0% 100% TSMC (mostly), UMC (less)
CNXT 65% 35% TSMC (mostly), UMC (more), Chartered, Samsung, Seiko, LG, Hitachi, Kawasaki DS 99% 1% Chartered
GALT 0% 100% TSMC
INTC 95% 5% TSMC (via Level One)
PMCS 0% 100% TSMC (60%), Chartered (40%)
RFMD 57% 43% IBM (Si and SiGe); TRW (GaAs-HBT)
TXN 99% 1% TSMC
VTSS 90% 10% n/a
Source: Company and CSFB estimates
The amount of exposure is not the only factor to be considered because if power is quickly restored, then the effect should be minimal. So far, our semiconductor equipment contacts believe that the impact to fab equipment does not appear to be too severe and is more likely to only need recalibration, not requalification - resulting in an impact that would be measured more in days, not weeks.
In addition, we believe that due to a recent increase in lead times and the potential of another Taiwan blackout due to Y2K, several companies were already in the process of building up additional "buffer" stock entering into this 4Q period. It is important to note that this safety stock seems to have
been initiated more by end customers to insure no stock-outs for the faster growing market segments. This inventory build has been more in "die banks" - when unfinished units are still on uncut wafers, not finished goods. If needed, these wafers could be cut, packaged, tested and shipped in 7-10 day turnarounds, but at a fraction of the finished goods costs. Based on a very limited survey of assembly and testing companies in Taiwan (including ASE and a Texas Instruments facility), the impact has been very minimal and the electricity issue is of no significant concern to WIP. Consequently, we believe these effects will be more transitory in magnitude for 4Q, but serendipitous to the current situation.
RFMD - No expsoure to Tiawan Foundries! |
