Philips sees possible chip slowdown in early '98, but continues to increase semi cap investment:
Philips Chip Unit Readies Itself For Trouble in First Half of '98
January 16, 1998
By ANTHONY DEUTSCH
Dow Jones Newswires
AMSTERDAM -- The semiconductor division of Dutch giant Philips Electronics NV isn't yet hurting from the downturn of Asian economies, but it is bracing itself and expects the worst is still to come.
Philips Semiconductors Chairman Arthur van der Poel said he is expecting a possible price erosion of about 10% in 1998 and said the division's bottom line will be hurt.
Although it is impossible to specify how severely earnings will be hit, Mr. van der Poel said that "if the current situation continues, we expect a negative influence on the whole market in the first and second quarter [of 1998]. And if that holds for the whole market, it will also hold for Philips Semiconductors."
But Mr. van der Poel stressed there is no need for panic and said plans for investments in the region will go ahead. Construction of chip production sites will continue and he reassured that no drastic measures are on the agenda.
Price Erosion
"The Korean situation will lead to price erosion. The other countries to be watched very, very carefully are Hong Kong, China and Japan," Mr. van der Poel said. He also said the "impact will be primarily on pricing. lthough, if China or Japan gets serious, then even the volume impact can be quite high."
Philips Semiconductors is the world's ninth-largest chip supplier with 1996 sales of $4.2 billion. About 40% of sales are generated in Asia, with 18% from internal orders and about 39% in Europe. Philips' sales of semiconductors in November and December were higher than the company had expected, Mr. van der Poel said, but he added that market growth has started to slow down.
Mr. van der Poel, nominated to take a position on Philips' management board, said overall "market growth seems to have dropped by about 5%," taking 1998 market forecasts of the growth of the semiconductor sector to around 10% from an earlier 17%.
He referred to developments in 1996, when growth in the semiconductor market slipped "from 18% to 19% to 13% or so. We don't see any signals that 1998 is going to be as bad as 1996," he said.
In November, world-wide semiconductor sales rose 9% from the like 1996 period, but the increase was pressured by declines in the world's three leading markets. European sales led growth at 13%, but in North and South America and in Asia they declined 0.2% in November from October. In Asia, year-on-year sales dipped 0.1% in November.
The outlook could worsen if the Asian flu spreads, Mr. van der Poel explained. Discussing specific regions, he said China hasn't yet shown "any concrete signs that are worrying, but we are monitoring it."
Looking for Warning Signs in Japan
In Japan, he said, things will start to become worrying if there's increase in corporate bankruptcies.
Mr. van der Poel said there are no plans to put on ice the 800 million guilders expansion of its production facilities in Calamba, Philippines. The expansion, which started in November, is planned in two stages with the first due for completion in early 1999.
But he added that "If the whole situation in Asia is going to be very serious, that investment will be phased over a longer period of time." Philips's television operations also will start to feel the squeeze of weaker demand in 1998, Mr. van der Poel said. "The television [operations] in Thailand and Korea will be impacted somewhat, but not dramatically. Overall sales will be about 3% lower and that's it."
Despite the recent developments in Asia, Philips Semiconductors will be boosting investment in the region this year. "We are looking to build a new eight-inch wafer site to be completed in 1999-2000," Mr. van der Poel said. The facility will manufacture between 25,000 and 30,000 wafers a month, he said.
The possibility of setting up the plant as a joint venture is one of the options, and details about potential partners and where the site will be located are to be announced soon.
Overall investments in the region could be doubled, and Mr. van der Poel said, "cash out will be 50% to 100% higher in 1998 compared to 1997."
Not Good Time to Divest
Regarding its holding in Taiwan Semiconductor Manufacturing Co., Mr. van der Poel said now would "certainly not be an attractive time" to sell the remaining 3% it intends to divest. "We promised to reduce our stake from 33% to 34% to around 25% in stages as the market would see fit. We have now sold two-thirds of that," he said In August, the Eindhoven-based group sold 105 million shares in TSMC, which will result in an extraordinary gain in the fourth quarter of 1997 of about 800 million guilders.
Mr. van der Poel refrained from giving a forecast for TSMC, but reiterated the company's earlier statement that it expects to achieve clearly higher earnings in 1998. |
