07 October 2008

More Pressure from the Financial Markets

Yesterday in Madness in the Markets we looked at the effect of the financial meltdown on some tech sector companies. Following this theme today we read on the China Economic News (CENS) that spending on semiconductor manufacturing equipment is predicted to be in decline. According to CENS:

Semiconductor Equipment and Materials International (SEMI) recently cut its 2009 forecast of global capital expenditure on semiconductor manufacturing equipment to somewhere between a 5% growth and a 10% decline, sharply down from a 20% surge it previously forecasted.

The trade organization, which represents suppliers of semiconductor equipment and materials and suppliers of liquid-crystal display equipment and materials, ascribed the bearish forecast mostly to the worsening global financial crisis.

Some equipment suppliers pointed out that the market is now anemic. Taiwan Semiconductor Manufacturing Co. (TSMC), the world`s No.1 silicon foundry, is reported to further cut on expenditure plan for next year while No.2 supplier United Microelectronics Corp. (UMC) is said to spend US$400 million, compared with this year`s US$600 million outlay.

Total 2009 expenditure by Taiwan`s top four dynamic random access memory chipmakers-PowerChip Semiconductor Corp. (PSC), ProMOS Technologies Inc., Nanya Technology Corp. and Inotera Memories Inc.-is estimated to be only half the NT$88 billion (US$2.7 billion at US$1:NT$32) they spend this year. Weak market has sent spot market price of 1-gigabyte DDR2 chip slumping to only US$1.2 apiece.

SEMI estimated the financial meltdown to force global spending on equipment down by 20% throughout this year. Applied Materials, the world`s No.1 supplier of semiconductor manufacturing equipment and materials, even announced a drastic 40% drop.

Such downbeat mood has infected fabless houses: Realtek Semiconductor Co., Ltd.`s vice president, J.S. Chen, estimated the downturn would last at least six to nine months.

Industry watchers pointed out that, unlike past market downturns, this downtrend is across-the-board, giving almost no sector a chance to bring about a boom cycle. To weather such hardship, chipmakers choose to hold more cash.

I don't think any industry is immune to the meltdown. The semiconductor manufacturing is an expensive game and holding on to cash is an important part of the equation. Highly-geared companies in this environment with uncertain or declining cash-flows may be in serious trouble. Semiconductor manufacturers will then be loath to spend on expensive fabs.

As if to reiterate the effect of the financial meltdown on different companies,Winbond revenues decline by 40%. According to Digitimes:

Winbond Electronics reported September revenues of NT$1.677 billion, a decrease of approximately 9.25% compared with NT$1.848 billion in the previous month. September's sales were also down more than 40% from the same period one year earlier.

Accumulated revenues for January to September of 2008 were NT$18.05 billion, down 29% from one year earlier.

September business was negatively affected by a soft DRAM pricing. Under a weakening macroeconomic environment and in order reduce losses, Winbond continues shrinking technology, driving cost reduction and adjusting production capacity to niche products.

Winbond are struggling but at least they are proactively trying to reposition themselves by focusing on cost reductions and targeting niche product markets.

CENS: SEMI Cuts 2009 Forecast of Semiconductor Equipment Capex
Digitimes: Winbond September sales down 40% on year

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