ANALYSIS-VIA reaps profit when Intel stumbles
By Michael Kramer
TAIPEI, (Reuters) - Few technology firms survive by defying the technology standards set by mighty Intel Corp <INTC.O>, the world's biggest microchip maker.
But Taiwan's VIA Technologies has not just survived, it has bitten a large chunk out of the U.S. giant's market share and looks set to extend its winning streak.
VIA has seen its market share in chipsets, which help a computer's microprocessor brain communicate with its memory chips, climb to nearly 40 percent from around 15 percent at the beginning of the year, mostly at the expense of Intel.
A flaw in one of Intel's chipset designs which led to a product recall helped. But analysts say VIA's best move was to back a different memory technology from the Rambus standard touted by Intel as the wave of the future.
Intel says memory chips designed by Rambus Inc <RMBS.O>, or RDRAM, are the best match for ever-faster microprocessors. Its latest offering, the long-awaited Pentium 4, uses a chipset that supports RDRAM.
VIA says RDRAM is too expensive and has more speed than most consumers require.
The Taiwan firm's top chipsets back double data rate (DDR) memory chips, which at a speed of 266 megahertz are twice as fast as the current standard but slower than Rambus's data exchange rates of up to 1,066 megahertz.
While Intel's dominant market share in microprocessors gives the firm a significant power to influence technical standards, analysts say the Taiwan-based firm is backing the right horse.
DDR POWERS VIA TO FAST GROWTH
"There is no doubt that VIA is going to succeed based on DDR," said Leo Li, analyst at Credit Suisse First Boston.
"I would say that VIA, in terms of the chipset business, can still grow like 25 percent next year in terms of volume. In terms of dollars, because new chipsets will usually have a higher ASP (average standard price), it will be even more."
That would come on top of an already spectacular year.
The company has already hiked its financial forecasts twice, and now expects to make T$11.8 in pretax earnings per share this year, against earlier forecasts of T$9.01 and T$5.71.
Its 1999 EPS was T$6.05.
Though VIA's shares are well off a year intraday high of T$569.97, hit by weak demand for personal computers, they have far outperformed the Taiwan market this calendar year.
At Monday's closing price of T$281.68, the issue was up 22 percent from the beginning of the year, compared with a 36 percent fall in both the overall TAIEX <.TWII> and its electronics subindex <.TELI> over the same period.
Besides rejecting Rambus memory, VIA is also allied with Intel's archrival in the microprocessor business, Advanced Micro Devices <AMD.N>.
VIA makes 80 percent of AMD-compatible chipsets and since AMD expects to ship 38 million processors next year against this year's 25 million, the Taiwan firm stands to reap big gains.
WILL INTEL SWALLOW ITS PRIDE?
What's more, analysts expect Intel to swallow its pride and license VIA and other third-party firms to make DDR chipsets for its top-of-the-line Pentium 4 processor launched last week.
The world's top third-party chipset designers are all Taiwan firms. Besides VIA, they include Silicon Integrated Systems (SIS) <2363.TW> and Acer Laboratories Inc (ALI) <5393.TWO>.
Analysts say third-party licensing is inevitable since Intel lags behind on DDR because of its commitment to Rambus.
"Intel will only be able to launch a DDR chipset supporting the Pentium 4 in third quarter" of 2000,said Ellen Jen, analyst at ABN-Amro Securities in Taipei.
"We do not rule out the possibility Intel will talk to third party chipset makers like VIA, SIS and ALI to license the Pentium 4 to them," she said. CSFB's Li was even more sure of a licensing pact, saying it would come in one or two months.
Intel already abandoned plans for a low-cost processor using RDRAM, the Timna, this year because the expensive memory chips took prices too high.
"Unfortunately, because of the relatively high cost of the Rambus structure, Rambus is unable to move into the mainstream of PC standards," said Jen.
For its part, Intel is hedging its bets.
"DDR is not a mainstream memory technology right now, and we are planning to support it when it becomes mainstream," said Michael Sullivan, an Intel spokesman, who added that DDR support was expected in the second half of 2001.
"While we won't speculate on any plans with respect to future licenses, historically we have licensed technology in exchange for fair value and have always considered doing so," added Chuck Molloy, another spokesman for the U.S. chipmaker. Analysts say VIA's commanding lead in DDR will give it the edge in the chipset business. The only fear is that this year's slowdown in personal computer sales will drag into next year.
"The risk factor of course is the PC market growth rate. They have 100 percent exposure to the PC market segment," said ABN-Amro's Jen. "So the overall market slowdown will definitely be a factor for the company's performance." ($1=T$33)
(Additional reporting by Duncan Martell in San Francisco) |
