March 26, 2001
Leading Taiwan Chip Makers
See Some Signs of Improvement
By Terho Uimonen
Staff Reporter of The Wall Street Journal
TAIPEI -- Leading Taiwan semiconductor companies are seeing signs of life in the personal-computer market, the sector where the current slump in the technology industry was first spotted last year.
The development suggests that PC makers have worked through their inventory glut, and the PC industry is returning to a normal business cycle rather than sitting on surpluses.
The bad news, however, is that the market for semiconductors used in devices other than PCs, particularly in mobile phones and other communications gear, is still expected to continue suffering.
"More likely than not we are going to have a record month [in March] and a record [first] quarter" in terms of sales revenue, said Chen Wen-chi, president and chief executive officer of Via Technologies Inc., Taiwan's leading supplier of chip sets and microprocessors for use in PCs.
Mr. Chen's optimistic outlook was supported by executives at Taiwan's largest semiconductor manufacturers, who spoke last week in Taipei at Merrill Lynch's annual Asia-Pacific technology conference. While the evidence is anecdotal -- hard sales figures are difficult to obtain since the companies are typically reticent about them on competitive grounds -- the views of industry executives point to an important turnaround in the business cycle of semiconductors used in PCs.
Although the semiconductor downturn overall appears to be worse than previously expected, "the PC segment seems more stable," said Harvey Chang, chief financial officer at Taiwan Semiconductor Manufacturing Co., known as TSMC, the world's largest contract manufacturer of chips. United Microelectronics Corp., another major contract chip maker, is also seeing "good signs" in the PC segment, said Frank Wen, general manager at the Hsinchu-based company.
Joseph Osha, the senior semiconductor analyst at Merrill Lynch in the U.S., reckoned that a comeback was afoot. He says he read the positive signals from Taiwan as indicating that demand for low-cost PCs is relatively healthy -- particularly outside the U.S. -- while interest in top-of-the-line PCs remains weak.
"What it really suggests to me is that we are seeing a real shift in terms of mix to low-end products," Mr. Osha said. He added that the development could spell trouble for chip maker Intel Corp., which he described as a company "in denial" in terms of its pricing strategy by releasing high-priced chips when customers are calling for less expensive ones.
To be sure, no one is claiming that the semiconductor industry as a whole is about to turn the corner.
"December was like somebody turned the lights off, and I didn't see anybody turn the lights back on in January," said TSMC's Mr. Chang. "Right now, as the customers are digesting their inventories it seems that the more they digest the more issues they have," he said, resulting in uncertain demand and customers placing orders only to cancel them a few weeks later.
Although the PC segment makes up the largest part of sales at companies such as TSMC and UMC, it isn't as large as in previous years. As a result, rays of hope in the PC sector aren't enough to make up for the overall downturn. Last year, for example, computer chips made up about 38% of UMC's total production, down from 58% in 1999, Mr. Wen said.
Analysts say that while a more stable outlook for the PC segment is good news for the Taiwanese companies, it doesn't mean that the broader semiconductor industry is out of a hole. Merrill Lynch estimates that inventory of communications chips rose to as high as 82% of sales in last year's fourth quarter, suggesting that it will take another two to three quarters to clean out the inventory pileup.
PC vendors, who have seen downturns before, may have been level-headed enough "to put the breaks on fast, while in telecom and networking they were used to nothing but unbridled growth," said Paul Meyer, senior analyst at CLSA Emerging Markets in Taipei. Despite the more positive outlook for PC chip suppliers, he said, "it doesn't mean end-user demand for PCs is going ballistic."
Another problem facing the industry is the murky picture of future demand. "Visibility is really thin," said Freddie Liu, assistant vice president in the financial department of chip packaging and testing company Advanced Semiconductor Engineering Inc. "Today the visibility is no more than two weeks." Mr. Liu added that, from ASE's view, the PC segment is performing better than its peers, such as communication and consumer chips, but that this is "company and product specific" and shouldn't be interpreted to mean the whole industry has rebounded.
Among ASE's major PC-chip customers are processor-supplier Advanced Micro Devices Inc. and Via, two Intel rivals that have complementing product lines. Mr. Chen of Via said his company supplies around 90% of chip sets for PCs powered by AMD's latest-generation processors. Chip sets, also known as core logic, are key components that allow a processor to communicate with other parts of a computer system.
Mr. Chen's rosy assessment of Via follows an earlier indication of good fortunes that supports the larger trend of a rebound among PC chip makers.
Write to Terho Uimonen at terho.uimonen@awsj.com |
