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May 14, 2001
Taiwan Chip Maker Says Industry
Will Remain Sluggish Until 2002
By Terho Uimonen and Peter Stein
Staff Reporters of The Wall Street Journal
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 |
