TSMC, UMC Cut Capital Expenditures More Than 40 Percent
March 22, 2001 (TAIPEI) -- Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) and United Microelectronics Corp. (UMC) are proposing to cut their capital expenditures for the second time this year by more than 40 percent each.
Spending cuts amounting to NT$100 billion by these two world-class wafer foundry companies are expected to result in the postponement of their 8-inch wafer plant expansion programs, but will not affect their plans to expand capacity in their 12-inch wafer plants, the area where both companies are competing fiercely. (NT$32.75 = US$1)
TSMC revealed Monday that it intended to lower its 2001 full-year capital expenditures from NT$80 billion to NT$70 billion. The reductions will mainly affect its originally planned expenditures on 8-inch wafer plants, and the company will go ahead with the program in developing 12-inch wafer and expanding the plants on schedule.
TSMC announced the year's first spending cut from US$3.8 billion to US$2.7 billion at the company's performance presentation for institutional investors at the beginning of the year. Its decision to again cut capital expenditures to US$2.2 billion shows that the wafer foundry giant has yet to see any signs of recovery in the dismal industry.
UMC, leading the new round of spending cuts in the semiconductor manufacturing industry, has decided to reduce its capital expenditures by as much as 46.5 percent so far this year to US$1.5 billion, from US$2.8 billion projected last year. As a result, the shortfall in the spending program of these two companies will total US$2.9 billion, equivalent to NT$95 billion.
Coincidentally, significant cuts in spending programs also were made by several leading Japanese companies, including NEC Corp., Fujitsu Ltd., Toshiba Corp., Hitachi Ltd. and Mitsubishi, at the outset of the year. These Japanese IC companies also are expected to make further cuts in their spending programs shortly after the new audit year beginning in April.
Intel also is expected to cut its spending by US$7.5 billion, having last week announced the second postponement of its planned wafer plant construction.
According to a market watcher, the semiconductor industry resembles a soap opera. The plot starts cheerfully, goes on to involve all the characters (including the two main actors) in disaster, then resolves all the problems and ends happily.
According to the business cycle often adopted by leading world-class IC makers, IC shares always reverse back downwards six months before a chip glut takes place in the global market. The difficulty of raising funds in the stock markets will trigger a flurry of cuts in IC makers' capital expenditures, resulting in a fall of the book-to-bill ratio. However, the experience in 1995 shows that share prices of IC companies tended to bottom out after the book-to-bill ratio reached a certain level, and that sentiment then is revived.
The decision by TSMC and UMC to make another cut their capital expenditures by more than 40 percent, equivalent to around NT$100 billion, should produce a steep fall in the book-to-bill ratio from March. The possibility that the book-to-bill ratio may therefore hit its new lifetime low of 0.5 bodes well for a rebound in their share prices.
Judged merely by the traditional relation between supply and demand, the spending cuts by these IC-making giants will give them a valuable respite from competition to increase capacity, thereby shortening the duration of the chip glut and advancing the time when the market bottoms out.
(Commercial Times, Taiwan) |
