Taiwan Chip Maker Says Industry
Will Remain Sluggish Until 2002
public.wsj.com
TAIPEI, Taiwan -- Demand for semiconductors will remain
sluggish this year, and the industry is unlikely to recover until
early 2002, predicts a top executive at a major chip maker.
The pessimistic outlook of John Hsuan, the chairman of United
Microelectronics Corp., is the first signal from a major chip
maker that a recovery in the slumping semiconductor sector
may not happen until next year, rather than this year's second
half. His comments also reflect the deepening world-wide slump
in technology and telecommunications investment.
Based in Hsinchu, Taiwan, UMC is the world's second-largest
dedicated semiconductor foundry. ( Taiwan Semiconductor
Manufacturing Co. ranks first.) UMC makes chips found in
everything from personal computers to mobile phones and
networking equipment. The diversity of its customers, which
include Advanced Micro Devices Inc., Infineon Technologies
AG and Xilinx Inc., and the products that ultimately use UMC
chips make the company a good indicator for the overall
semiconductor market, according to a recent report written by
Eric Ross, an analyst at Thomas Weisel Partners LLC.
No Quick Recovery
Mr. Hsuan said in an interview Friday that demand remains
sluggish across all product segments. That applies to the
personal-computer sector too, despite some positive signs late
in the first quarter.
"It is clear the recovery won't be V-shaped," Mr. Hsuan said. "I
would say it will be a fat U," explaining that a long
bottoming-out period was needed before the demand curve
picks up again.
With many of UMC's customers still in an "inventory
adjustment" mode, Mr. Hsuan said what little upside he expects
to see in the second half of this year is based on a seasonal
sales peak in the end-of-year holiday period and the first
shipments in the fourth quarter of products based on UMC's
newest manufacturing technology. This technology allows chips
to be designed with line-widths of 0.13 micron, compared with
0.18 micron and higher now in use in most UMC products.
A recovery in the second half would be possible only if major
customers, in particular buyers of communications chips, such
as Cisco Systems Inc. and Nortel Networks Corp., decide to
write off their inventories, Mr. Hsuan said. A write-off would
launch a new demand cycle for the chips that power their
products. Without that, it may take until the end of the year
before current inventories of communications chips are worked
through, which would result in fewer orders for new chips, he
added.
Grim Outlook
Mr. Hsuan's comments underscore the already grim chip
outlook. World-wide semiconductor sales are expected to
shrink to US$188 billion in 2001, down 16.7% from last year,
market researcher Gartner Inc.'s Dataquest unit reported last
week. "Right now we're in a very bad situation," F.C. Tseng,
president at rival TSMC, said in Singapore on Friday. "No one
has confidence that the semiconductor industry will improve this
year." Mr. Tseng added, however, that demand is picking up.
These downbeat comments from executives at two
chip-industry giants show how fast sentiment is changing. As
recently as April 27, TSMC Chairman Morris Chang predicted
that a recovery will begin in the third quarter. "This clearly is the
worst downturn the foundries have seen in a long time, if not
ever," said Matt Cleary, newly appointed head of Asian
technology research at Lehman Brothers, commenting on Mr.
Hsuan's gloomy prediction. Foundries manufacture chips
designed and sold by other companies.
Both TSMC and UMC recently announced that they expect
declines in net profit and revenue for this year. TSMC said its
projected net profit would drop 60% to 25.7 billion New
Taiwan dollars (US$781.9 million), from NT$65.1 billion in
2000. It expects revenue to decrease by 10% to NT$149
billion, from NT$166.2 billion. UMC, meanwhile, is predicting
an even bigger drop in net profit to NT$13.3 billion, down 74%
from NT$50.8 billion. The company said revenue would drop
19% to NT$85 billion from NT$105.1 billion.
Write to Terho Uimonen at terho.uimonen@awsj.com and
Peter Stein at peter.stein@awsj.com
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