All,
Some news below. One item that stood out when I read this, "Cypress said all the chips it makes for other firms are made in the Round Rock plant, which is operating under capacity." Of course, the semi-equip bulls don't like to read about a fab that is operating "under capacity". But, it seems in our interests to invest with our eyes open. I'm looking to add to positions at bargain prices and agree with Ian on the limited downside of the three he cited.
Regards,
Teri
By Russell Flannery Staff Reporter
HSINCHU, Taiwan -(Dow Jones)- Taiwan's manufacturers of the most widely used type of personal-computer memory chips are scrambling to switch to new products in order to cope with a plunge in prices spurred by the collapse of the South Korean won.
Makers of the mainstream dynamic access random memory, or DRAM, chips have little or no choice: Most have been losing money, and a more than 50% drop in U.S.-dollar denominated prices since mid-September has pushed companies to the point where they barely cover the cost of materials needed to make chips.
Those costs - known as variable costs - are about $2.50 per chip locally, just about the same as the spot price for benchmark 16-megabit DRAM chips at the end of last week. If prices keep falling, chipmakers who don't switch to something different will be under pressure to shut down production to avoid widening losses.
"If prices stay below variable costs, it doesn't make any sense for companies to run their factories," said Don Floyd, a semiconductor industry analyst at ING Barings in Taipei. "The more chips they make, the more money they'll lose. Companies will face some tough decisions."
Lower prices for DRAMs have hurt much of Taiwan's semiconductor industry because the majority of major makers produce at least some of the chips. About 30% of Taiwan chip sales of around $5 billion this year will come from DRAMs, and the island's industry ranks among the world's five largest.
International spot prices for 16-megabit DRAMs have plunged from about $9 in the second quarter because of lower-than-expected demand and a glut of supply, mainly from South Korean makers who have the largest share of the world market, analysts said.
The dive in prices has accelerated this month, following last week's 27% drop in the won. Although the currency rebounded Monday, rising by its 10% daily limit, it has lost 51% so far this year.
Lower DRAM prices earlier this year had already forced local makers to cut earnings forecasts and delay expansion plans, trends that will be extended by the most recent declines in the market, industry executives said.
Texas Instruments-Acer Inc., about 48% owned by computer maker Acer Inc., in October delayed $400 million of spending on new equipment to make chips, and predicted a 1997 loss of 1.87 billion New Taiwan dollars (US$58 million), reversing an earlier forecast of a net profit for the year of NT$660 million.
In an interview Monday, TI-Acer Vice President Lora Ho told Dow Jones the NT$1.87 billion loss figure is still is too rosy, and that the company expects to revise its projection to more than NT$3 billion. TI-Acer for now isn't adding any new products, Ho said, explaining, "It's too late to do any short-term switching." The company plans to lower costs by changing to technology that will lower average unit costs early in the first quarter.
Last week, Mosel Vitelic Inc., a niche DRAM maker, lowered its forecast for 1997 net profit by 42% to NT$2.35 billion. Sales this year will total NT$9.06 billion, down from an earlier prediction of NT$13.0 billion.
Analysts said that in the near term, the sharpest blow from the fall in chip prices may be felt by companies that are relatively active in the spot market, such as Vanguard International Semiconductor Corp., a 27%-owned affiliate of Taiwan Semiconductor Manufacturing Co. (TSM), Taiwan's biggest chip maker. To cope, Vanguard has tried to cut costs and has lowered its production of extended-data-out DRAM - the industry's most common type of DRAM - to about 70% of its total product from around 100% at the beginning of the year by introducing other new products, said Kuo Shan-shan, a company spokesman.
Vanguard has boosted sales of relatively fast synchronous DRAM, or SDRAM, to about 20% of its total, and has raised production of SGRAM, or synchronous graphics RAM, which is used with 3-D technology and video applications, to nearly 10% of its total, she said.
Lower prices have also led Vanguard to slow the start of new production compared with its original 1997 goals. The company is only making 17,000 wafers per month at a facility opened at the end of last year that can make up to 25,000 per month. The company is increasing "production at a rate that's slower than anyone expected," Kuo said.
Powerchip Semiconductor Corp., another specialized DRAM maker, may be in a slightly better position because all of its production is supplied to Japan's Mitsubishi Electric Corp. on a contract basis. That means there's probably a lag before its prices reflect spot-market conditions.
Regardless, it's overhauling its plans for 1998. "The strategy has to be changed because the price of DRAM is falling rapidly," said Cecilia Yang, a company spokespersonn.
Powerchip, which is 13% Mitsubishi-owned, will change its product mix. It expects to have as much as 20% of production in non-DRAM products, including logic chips, at its existing plants by the end of next year, Yang said.
Copyright (c) 1997 Dow Jones & Company, Inc.
All Rights Reserved.
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NEW YORK -(Dow Jones)- Cypress Semiconductor Corp., which makes specialized forms of memory chips, Monday warned results for the current quarter will fall well short of analysts' expectations and announced plans to exit certain businesses and close some plants.
Cypress (CY) expects per-share earnings for the quarter ended Dec. 29 to come in between break-even and one cent. The mean estimate of seven analysts surveyed by First Call had been for earnings of around 10 cents per share.
Just a week ago, Cypress said it was comfortable with Wall Street estimates and forecast revenue of between $152 million and $155 million. Now it expects revenue of between $140 million to $143 million.
The San Jose, Calif.-based company also said 1998 earnings will come in below estimates, with Cypress now expecting 50 cents a share, compared with estimates for 65 cents to 70 cents a share.
Cypress cited a shortfall in revenue from making chips for other companies, weak orders from their customers, and a $10 million shortfall in SRAM, or static random access memory, chip revenue because of a "timing problem in shipping by the quarter-end cutoff." Specifically, Cypress cited a dealy in boosting production of SRAMs at a Round Rock, Texas, plant. Cypress expects to catch up on SRAM shipments during the first quarter of 1998.
Cypress said its other divisions account for 56% of the company's sales and will show revenue growth compared to year-ago figures. But Cypress said the slowdown in chip-production business will persist in 1998. Cypress said all the chips it makes for other firms are made in the Round Rock plant, which is operating under capacity. As long as that situation persists, the drag on profits will continue, the company said.
Cypress said it will scrap a chipset business and close its Munich, Germany, motherboard business. Cypress will also shut down an assembly and test operation in San Jose. Cypress said new products introduced by Intel Corp. made Cypress's chipset products outdated. The company also said it is exiting the EPROM chip business but will continue to serve current customers. EPROM is a type of memory chip widely used in cellular phones, pagers and other devices.
Cypress said it will propose to expand a share-buyback program by two million shares at a board meeting Tuesday.
Cypress also said the economic troubles in Asia are having a mixed effect on the company. Cypress said it has taken steps to guarantee that production at a Thai assembly-and-test operation won't be uninterrupted in the event that the local firm, Alphatec, becomes "unstable." As a contingency measure, Cypress said, it has set up a test floor in a separate facility in Bangkok. About 30% of Cypress's production passes through Alphatec.
On the positive side, Cypress said manufacturing costs at Alphatec, as well as those at its other subcontractors in Asia and at its Manila plant, have dropped. Cypress said it ships 9% of its revenue to Japan and 10% to non-Japanese Asian sites. Some of the non-Japanese Asian business is subject to "demand correction," Cypress warned.
Copyright (c) 1997 Dow Jones & Company, Inc.
All Rights Reserved.
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