A few chip-related stories (some are a couple of days old),
12/08: SGS-Thomson Economist Says Asian Crisis Could Help Chip Market
By Alan R. Katz Staff Reporter
PARIS -(Dow Jones)- Jean-Philippe Dauvin, chief economist at SGS-Thomson Microelectronics NV, said the current Asian financial crisis can be good news for memory-chip makers.
The world semiconductor industry is in one of its cyclical downturns,
brought about by chip oversupply, mainly in the cutthroat sector of
dynamic random access memory chips, or DRAMs. According to Dauvin, the
Asian crisis is a natural regulatory mechanism for the chip market and
should bring supply and demand back into balance by mid-1999.
South Korea's currency- and credit-related setbacks and Japan's banking worries mean expectations of lower capital expenditures as chipmakers look to cut debt and improve their balance sheets, rather than continue their capacity-expanding sprees of recent years.
"In 1997, we could see capital spending down 10%, which is still not
sufficient to put capacity in line" with demand, Dauvin said. "Under my model, there should be a drop of 25% to 30% in spending."
Like many onlookers, Dauvin feels that DRAMs trade like any other
commodity, such as copper, coffee or cocoa, with pricing entirely
dependent on a strict supply-demand equation. He's only an observer when it comes to DRAMs because SGS-Thomson (STM), a Franco-Italian chip maker, has never been active in that sector.
"I wouldn't be afraid to see a 20% capital-spending drop in 1998, rather than the 15% increase expected before the crisis," Dauvin said.
Neil Barton, technology analyst at brokerage firm Merrill Lynch in
London, said that estimate seemed appropriate. "We know that South
Korea's Samsung will cut capital spending by 30% next year, though we
don't know in what sector," he noted.
South Korea and Japan are the main players in the DRAM market. Last
week, South Korea agreed to a $57 billion bailout package led by the
International Monetary Fund. As part of the rescue, the IMF required
South Korea to slow economic growth, raise interest rates, tighten
credit and open its markets - including its chip market - more broadly
to imports.
Dauvin added that he expects a strong upturn in the DRAM market in 1999 and 2000 and a return to undercapacity from overcapacity. "The market is structured for 16% growth per year, and I think that figure is good for the next 10 years," he said.
But in keeping with SGS-Thomson's book, Dauvin predicts that the future of semiconductors is in mass-market appliances, such as cellular telephones and digital televisions. SGS-Thomson is a major player in the system-on-a-chip concept, which requires differentiated - or custom-designed - chips.
"That is the new driving force, and 75% of the chip industry will soon
be mass-market," he said.
In the new dynamic, Dauvin forecast that only the largest - and,
surprisingly, the smallest - chip makers will survive. Chip production
plants, or fabs, confer huge economies of scale but also require
enormous outlays. Dauvin said the existence of several outsourcing chip foundries in Taiwan will allow small design companies producing
specialized chips to remain in business. The losers will be second-tier companies.
To avoid that fate, SGS-Thomson has long been nurturing partnerships
with consumer-goods providers such as Finland's Nokia Oy and Seagate
Technology Inc. (SEG). The company has said it needs to raise market
share in its activities to around 5% from 3% now.
SGS-Thomson is pushing to grow on the hardware side, but Dauvin said
software was the key for the company's future. As a result, the company is taking majority stakes in a lot of small software companies.
Dauvin was cautious regarding SGS-Thomson's financial details because
the company may opt to make a capital increase, but he did say he
believes technology stocks will continue to be a wise investment. In
times of market uncertainty, investors often will move out of shares
that offer high rewards, but also carry high risks, in favor of less
volatile shares despite the lower returns offered by the latter.
Dauvin may be proved correct in the future, but his assessment is far
from the case now: Technology stocks are among the most volatile on many exchanges. Technology stocks in the U.S. and other markets were hit last week when Merrill issued a bearish outlook for the semiconductor industry. The brokerage contended that the next 12 months will be "very rough" for semiconductor shares.
Analysts warn that SGS-Thomson faces some problems itself. Cody Acree,
an analyst at Southwest Securities Inc., said the biggest issue facing
the company is its exposure to the disk-drive market, which makes up a
sizable percentage of its business. "Right now the disk-drive industry
is extremely oversupplied, and you'll probably have that situation for
the next two to three quarters," he said.
Copyright (c) 1997 Dow Jones & Company, Inc.
All Rights Reserved.
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12/09: S&P Places Hyundai Semiconductor Rating On Creditwatch
TOKYO -(Dow Jones)- Standard & Poor's Tuesday placed its triple-B-minus long-term local currency rating of Hyundai Semiconductor America Inc., the U.S. subsidiary of Hyundai Electronics Industries Co. Ltd., on CreditWatch with negative implications.
S&P said the move stems from concerns that the credit quality of Hyundai Electronics Industries, which owns 76% of the stock of Hyundai
Semiconductor America, could deteriorate amid possible weakness in key
product areas combined with the indirect effects of the current turmoil in Korea's economy and financial markets.
The Hyundai Group, one of Korea's largest business conglomerates, plans to provide support to the Halla Group, the country's twelfth-largest conglomerate, which currently faces serious financial problems, S&P said.
The ratings agency said current exposure as well as anticipated buyouts of or equity participation in Halla Group companies will increase the financial burden on Hyundai affiliates.
Exacerbating these developments is the fact that the semiconductor
company currently lags behind some competitors in stepping up production of next-generation 64-megabyte dynamic random access memory chips.
Also, U.S.-based Maxtor Corp., Hyundai Semiconductor's largest
subsidiary and one of the world's largest manufacturers of hard disk
drives, is facing a highly competitive and difficult market, S&P said.
Another factor that could adversely affect Hyundai Semiconductor's
credit quality is the company's already high debt usage, S&P added.
Historically, an extremely favorable operating environment fostered by
the supportive policies and practices of the South Korean government had largely mitigated the risk of this highly leveraged position. However, such policies and practices are now increasingly being constrained.
Copyright (c) 1997 Dow Jones & Company, Inc.
All Rights Reserved.
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12/09: National Semiconductor's 2nd-Quarter Earnings Rose 11%
NEW YORK -(Dow Jones)- National Semiconductor Corp., which hopes to make a dent in Intel Corp.'s dominance of the chip business, Tuesday
announced a 11% increase in fiscal second-quarter earnings, about in
line with analysts' expectations.
For the period ended Nov. 24, Santa Clara, Calif.-based National
Semiconductor (NSM) said net income came to $28.9 million, or 17 cents a share, compared with $26.1 million, or 16 cents a share, in the
year-earlier period. Revenue increased 4.8% to $719.9 million.
However, the latest results include an acquisition-related charge.
Excluding the charge but including the effect of the 16.4 million shares issued for an acquisition, National said it would have posted earnings of 43 cents a share. The mean estimate of analysts surveyed by First Call was for earnings, excluding charges, of around 44 cents a share.
National last month closed its buy of microprocessor concern Cyrix Corp. and earlier this year sold older chip lines to focus on making
higher-end chips. The deal to buy Cyrix in a $550 million stock deal
could turn unprofitable Cyrix into a well-financed competitor to Intel
and make National Semi a mainstream player in the battle over chips that provide processing power to the personal computer industry.
At the heart of the Cyrix deal is the zeal of Brian Halla, chief
executive officer of National Semi, to participate in what he believes
is a bright future market for PCs that cost less than $500. Cyrix's
chips are already popular in sub-$1,000 computers and could be combined with National's own technology to drive costs down further by creating "systems on a chip," a new class of product that integrates what have been separate chips onto a single piece of silicon.
National last month also said it acquired Future Integrated Systems, a
Milpitas, Calif.-based supplier of graphics hardware and software for
personal computers. National Semi said the acquisition will expand its
ability to integrate advanced graphics capabilities into PC chips.
But the near term might not be so bright. NationsBanc Montgomery
Securities Inc. last week lowered its investment rating on National to
"hold" from "buy" and cut earnings estimates to $1.85 a share from $1.95 for fiscal 1998 and to $2.15 from $2.40 for fiscal 1999.
And influential Merrill Lynch & Co. analyst Thomas Kurlak last week
reduced his 1998 earnings forecasts for several other chip companies,
claiming that the next 12 months will be "very rough" for semiconductor
stocks.
Kurlak said an "overinvestment" in chip capacity from 1994 to 1997 has
led to an "oversupply condition" in the industry. He added that the
personal computer industry isn't consuming new chips as quickly as it
used to, which has led to a "chronic weak pricing environment."
However, the consensus investment rating of 16 analysts surveyed by
First Call remains at a "buy."
Copyright (c) 1997 Dow Jones & Company, Inc.
All Rights Reserved.
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