Friday May 4, 12:22 am Eastern Time
RPT-Chip foundries see PC sector leading tech recovery
By Michael Kramer
TAIPEI, May 2 (Reuters) - From a perch at the top of the semiconductor production chain, the world's top contract chipmakers see the personal computer sector as the first to climb out of a broad tech slump as the communications sector languishes.
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Foundries, or contract chipmakers, were able to dodge part of a broad downturn in semiconductor demand that began last year thanks to a broad portfolio of clients in all sectors of the chip business.
However, they ran out of safe harbours in the first quarter of 2001 as the slump spread from personal computers to mobile telephones to wireline communications and Internet infrastructure.
World top foundry Taiwan Semiconductor Manufacturing Co (TSMC) (NYSE:TSM - news) saw its net profit slide 16 percent year-on-year in the first quarter, while the second largest foundry, United Microelectronics Corp (UMC) (NYSE:UMC - news) saw earnings fall 13 percent.
Chartered Semiconductor Manufacturing (NasdaqNM:CHRT - news), third on the foundry totem pole, posted a $30.91 million net loss in the first quarter against a year-ago $37.82 million profit.
Yet even as the world's top three foundries posted sharp declines from their boom year of 2000 and forecast worsening conditions in the April-June period, most also saw the personal computer sector emerging from the woods.
``In terms of recovery, we think that PCs will come up first, and then communication,'' said Peter Chang, UMC's chief executive officer.
COMMUNICATIONS SECTOR STAGNATES
However, ``as of right now, we do not see any signs of a communications recovery,'' Chang warned an analyst conference this week.
Most tech hardware firms are struggling to work through a mountain of inventory, and PC makers were among the first firms to find products gathering dust in warehouses in mid-2000.
Internet infrastructure firms like Cisco Systems (NasdaqNM:CSCO - news), however, were among the last to encounter the problem, and foundries expect communications firms and the companies that design microchips for them to be the laggards in bringing their stockpiles down.
While sector heavyweight TSMC has forecast business to improve in the second half after hitting bottom in the April-June quarter, TSMC chairman Morris Chang expected communications to miss out on the action.
``I do not expect communications to have a clear recovery in the future three or four months,'' Chang told analysts on Friday.
``You may ask me what my forecast of a third quarter recovery is based on, if communications shows no signs of improvement, and my answer is: everything else,'' Chang said.
Singapore-based Chartered Semiconductor saw a similar landscape.
``In Q2, I suspect we will see communications weaker still, especially in (the) wireline (segment),'' Chartered chief executive officer Barry Waite told Reuters on April 20 after release of its results for the quarter ended in March.
``It's taking a long time to work through inventory corrections in that part of the market.''
But on the PC area, Waite said: ``Talking to our customers, we are sensing a little more confidence in the belief of coming back in their volumes. It's probably certainly offering more glimmers of stability and returns and maybe some growth.''
LIGHT AT TUNNEL'S END?
Comments from the customers themselves also support the view. Intel Corp (NasdaqNM:INTC - news), maker of 80 percent of the microprocessors that power the world's computers, has said its processor business appeared to have stabilised.
Cisco, however, warned in April it expected third quarter results to fall below analysts' forecasts and said it had never faced a more challenging business environment. It had to take billions in inventory writeoffs in its latest results.
The world's biggest PC makers Dell Computer (NasdaqNM:DELL - news), Hewlett-Packard (NYSE:HWP - news) and Compaq Computer Corp. (NYSE:CPQ - news) have warned of weaker profits and announced layoffs. In Europe, communications equipment maker Siemens AG and chip equipment maker ASM Lithography have also issued gloomy forecasts.
On the brighter side, inventory cannot choke the supply chain forever. ``This is part of the reason why I think third and fourth quarter will be better, said TSMC's Chang. ''Stockpiles are big, but they will work down eventually."
However, doubts still remain on whether demand will be waiting at the end of the tunnel as a slowdown in the global economy bites into corporate and consumer pocketbooks.
``We can see that PC reacted most quickly, so it was faster on reducing inventories,'' said UMC chairman John Hsuan, who has refused to give a forecast for a semiconductor upturn, citing murky business conditions.
``They continued to charge ahead in the first quarter, but after the sprint, they found that demand was still not very good, so they have slowed down,'' Hsuan said. |
