Chartered Semiconductor to Idle 2 Plants for 8 Days
Friday January 17, 2:09 am ET
By Sai Man and Abdul Hadhi
SINGAPORE -- Loss-making chip foundry Chartered Semiconductor Manufacturing Ltd. is idling two plants for eight days to save costs as it enters a seasonally slow period but said it has no immediate plans to lay off any staff.
The Singapore government-linked foundry will idle two of its five semiconductor wafer fabrication plants around the Lunar New Year, which falls in early February, in a move to reduce costs, a Chartered spokeswoman said.
Analysts said the world's third-largest foundry is facing a tough start to the year with scant signs of a solid recovery in chip demand, leaving its production capacity poorly utilized.
In October, Chartered said it used 39% of its capacity in the third quarter and said the fourth quarter would be worse, with factories only being roughly 35% used. A rate of 70% is considered a break-even point.
"With so low capacity utilization, Chartered is still trying to break down its costs since it can't get revenue fast enough," said Dharmo Soejanto, a Kim Eng Ong Securities analyst in Singapore.
Global chip demand grew just under 2% last year, and some analysts estimate demand to be in single-digit percentage terms this year.
That has sparked rumors that Chartered may have to make a second round of job cuts in a bid to pare down costs further - speculation that Chartered was eager to quash Friday as its stock fell. Chartered shares were down 4.7% as of midday Friday as investors continued to dump the stock, which tumbled 83% last year.
"We don't know of any plans to carry out another company resizing exercise," the Chartered spokeswoman told Dow Jones Newswires.
Chartered fired 300 employees, or 7% of its work force, in October, and according to one analyst, rumors have circulated since December that another round may be required.
The two foundries to be idled - Fab 1 and Fab 2 - make 0.35-micron-and-above wafers, considered mature technologies that face competition from lower-cost producers from China. Microns measure the gap between transistors on a chip by millionths of a meter. The smaller the measure means more transistors can be packed on a single chip, making it more powerful.
All Happened Before?
Idling plants around the Lunar New Year isn't new for Chartered, which shut down part of its operations around the same time in 2001 and 2002, Chartered said.
But analysts weren't entirely convinced, fearing it could suggest business conditions are fundamentally poor, and not seasonally so.
"It could be seasonality but it could also be the overall slowdown in chip demand," said one analyst, noting that back in 2000, foundries were humming around the clock during Lunar New Year due to strong demand.
Analysts said Fab 1 and Fab 2 are Chartered's "cash cows" and, together with its more high-end 0.18-micron wafers, are typically better utilized than its middle technologies.
The fact that Chartered is resorting to idling plants suggests orders for these two plants may be lower than analysts expect, since idling plants isn't necessarily cost-effective.
"The startup of the plant is expensive, you have to get the engine up and running again," an analyst said.
Chartered didn't say how much money it would save from idling plants. Analysts said cost cutting, whether idling plants or firing more staff, won't be enough to turn the company back to profitability this year.
"Cost cutting is not enough for Chartered to compete against other foundries if it wants to play the top-tier game. We need to see revenue drivers," said Chuan Yang Lim, an analyst at Standard & Poor's Investment Services.
The factories of Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp , Chartered's two larger Taiwanese rivals, operate at a much higher rate.
TSMC, which ran its factories around 61% of capacity in the fourth quarter, said it normally doesn't close its fabs during the Chinese Lunar New Year, or for any reason.
"This is normal, it costs a lot of money to reopen a fab," said Tzeng Jin-hao, the head of public relations at TSMC.
The ultra-clean environment of a fab has to be maintained at all times, even when some production lines aren't running at full capacity, he said. Any contamination inside a fab can damage chips during the production process, he said.
"People seldom close a fab if they still need that fab," he added.
United Micro ran its factories at 68% in the third quarter.
"The global chip industry is seeing a slow recovery. Given the weak spending outlook companies are going to have to muddle through this year," Kim Eng Ong Securities' Soejanto said.
Chartered is heading for its eighth quarterly loss when it reports fourth- quarter earnings on Jan. 29, analysts said.
Soejanto predicted Chartered would lose US$116 million on revenue of US$103.6 million for the fourth quarter, which ended in December. |
