Chartered Semiconductor posts US$24.1m Q4 profit
Chartered reported net profit of US$24.1m in 4Q05, above our forecast of US$16.3m. The better results were due to slightly higher gross margin and slightly lower depreciation compared to our projections.
Growth driven by Consumer sector. Revenue expanded 26.6% qoq and 92.7% yoy to US$367.2m (guidance: up 22-25%) in 4Q05. Growth is driven by sales from Consumer sector, which expanded 73.6% qoq to US$176.3m or 48% of sales. This is largely contributed by microprocessors for Microsoft XBox 360. There was also contribution from MP3 players & recorders, set-top boxes and digital still camera.
Wafer shipment increased 16.3% qoq to 314.8 thousand wafers (8-inch equivalent) with capacity utilisation improved from 74% in 3Q05 to 79% in 4Q05. ASP gained 10% qoq to US$1,139 per wafer as contribution from 90nm process technology expanded from 26% of sales in 3Q05 to 31% in 4Q05.
Maintaining profitability in 1Q06. Chartered guided sequential revenue decline of 2% to 4% and net profit of US$15m in 1Q06. Weakness for video game consoles and MP3 players is offset by strength for set-top boxes for the Consumer sector. ASP is expected to decline 4% to 7% with 90nm process technology contributing 27% of sales. Capacity utilisation is expected to improve to 83%. The guidance is better than our expectations as we had initially factored in slight loss in 1Q06 due to seasonal weakness.
Continuing to ramp Fab 7 in FY06. Chartered will produce AMD64 microprocessors (production to start mid-2006), baseband chips for 3G mobile phones (production to start in late 2Q06) and PC graphics (production for 0.11µm in 1Q06 and 90nm in 2H06) on 90nm process technology at Fab 7. It is developing prototypes for the second wave of 90nm projects for production in FY07. Production for 65nm process technology should commence in 4Q06 for baseband and microprocessor products with volume production in FY07. Chartered will expand capacity for Fab 7 from 9,000 wafer/month at end-05 to 18,000 wafers/month at end-06.
We have raised our FY06 net profit forecast by 4.9% to US$91.9m. We benchmarked valuation of semiconductor stocks at EV/EBITDA of 5.5x (previous: 5x) due to improving visibility as industry recovery gathers pace in 1H06. Our target price for Chartered has been raised to S$1.88 based on FY06 EV/EBITDA of 5.5x.
